More Customers? No Thanks

In: Numbers

3 Nov 2010

growth versus profitability in a tech startup

Most companies are constantly focused on growth. It makes sense at first. You’re either growing or dying right?

But to grow means you need more resources and maybe more funding or sales.  Ironically, most companies go belly-up despite strong growth.

What kills them is the pace of the growth. Twitter has grown so fast it’s had problems with its engineering keeping up with the adoption rate. Good problems to have no doubt but problems nonetheless.

Enter 37Signals and their obtuse approach to business. Inc.com recently ran an article by their founder, Jason Fried, and his strategy for pricing a new iPod app at almost 10X the normal app price ($9.99 vs. $.99).

So far, we’ve sold nearly 2,000 copies of Draft. That’s about $20,000 in revenue. We are much happier with $20,000 in revenue from 2,000 customers than $20,000 in revenue from 10,000 or 20,000 customers. Given our current resources and team, we can happily serve 2,000 Draft customers, plus all our other customers.

Same gross revenue but dramatically less customer service costs. Smart growth not fast growth. (Note: The only way 37Signals can do things this way is that they only have one investor – Jeff Bezos, from Amazon)

As the picture shows, you can have a big pie with a big customer service expense. Or you can have a smaller pie with a lot less customer service headaches. Same profitability at the end of the day but the circle on the right is a lot easier to manage in a startup environment.

There’s a direct correlation between the quality of a customer service experience and the rate of growth at that company. Given the power of social media, companies have to be super careful to get this ratio correct. If not, word spreads too fast (especially within a tech community) and it becomes even harder to sell to the Early Majority with bad word of mouth out front.

In an early-stage (or any stage) company, don’t be afraid as the marketing lead to speak up and bring up the importance of letting customer service keep up. These people are often times the most important brand ambassadors, despite their salaries not necessarily reflecting their contributions.

Interesting Facts About Technology Adoption and Twitter

In: Research

7 Oct 2010

Adoption of Twitter

I taught a short intro course this week at Montana State University on Social Media.  Preparing for the lecture, I was surprised to learn a few key things in the way the different social media technologies have been adopted to date, namely Facebook and Twitter.

  1. Almost 41% of Americans are on Facebook
  2. If Facebook were a country, it would be 3rd in population behind India and China (500 million users)
  3. Despite 87% of people knowing about Twitter, only 7% use it

Note: Data is from Edison Research – conducted February 2010 – Twitter Usage in America 2010.

While Twitter has enjoyed great buzz this hasn’t necessarily meant a huge wave of adoption. The research does show a startling spike in awareness from 5% in 2008 to 87% in 2010 with people over the age of 12.

A great example of how people can know about your product but not know its value.

Watch the full video here from Edison:

Twitter Usage in America 2010 from Tom Webster on Vimeo.

How HubSpot Got its GroupOn Virally

In: Strategy

1 Oct 2010

HubSpot's Upcoming PR Book

In preparation for an upcoming course I’m teaching at Montana State University, I’ve been combing through some of the literature put out by HubSpot, which is a company specializing in inbound marketing software.

Viral Marketing Software

Today, they had a brilliant viral marketing idea for pushing a viral buzz and getting potential subscribers.  In short, they’re driving leads to their website via a variety of social media channels, qualifying them through the sign up process, and in exchange offering a free 28 page PDF download on PR. But they’re relying on the community to do the heavy lifting for them. Much like GroupOn’s model, the catch is 500 people have to sign up by 6:30 EDT today for everyone to get the download.

A smart strategy for three reasons:

  1. User Participation: I don’t know if I’ll get the ebook download but I can personally do something to help ensure I do. Out it goes on Facebook, Twitter, and LinkedIn. Now, I’ve invested time in the effort by pushing updates out to fellow marketers in my network. As a result, I’ll probably associate more value with the offering given this investment of time.
  2. Delayed Gratification: I interacted with the HubSpot brand and then clicked on.  But in the back of my head, I’m still curious if I’ll get the ebook.  I’ll probably be looking for an email with the download link. How many impressions did HubSpot just get off this?
  3. Cost: Given the quality of their written work that I’ve been reading, I’m pretty sure the ebook will be well researched and written.  (Actually, it better be, as the community that helped push the awareness for the download can just as easily turn around and tear the ebook apart.) While creating valuable content no doubt costs time for HubSpot, it does push traffic and instantly sets up a sales funnel that qualifies leads.  Chances are out of a minimum of 500, some will convert and the customer acquisition cost is minimal not to mention future customers as well.

Can’t ask much more than that from a marketing campaign.

Extra Credit: How can you create a piece of educational content that could help your customers in an area of their business? Instead of the boring, “enter your email here” = instant download, can you bake some viral ingredients in like HubSpot just did?  Enter any ideas in the comments below.

What About Your ‘About Us Page’?

In: Branding

27 Sep 2010

Here’s a no-brainer for attracting the right kind of clients and employees to your company…write an out of the box ‘About Us’ page.

Check out Seth Godin’s post on the five things you must have.

In the tech world, most companies have lame websites with cool color palettes and tons of cheesy stock photography. Break out of this mold and put your culture up there front and center. If you’re stuffy and that works for your clients – don’t change a thing.

But if you’re honest and don’t pull any punches, you’ll find that it does two things:

  1. Attract the right kind of clients. If they still contact you after a goofy ‘About Us’ page, it might be a good cultural fit and you can weed out the haters from the get-go. Great relationships = great work = great case studies.
  2. Find better employees. Talented people want to go to work and have fun in different ways. The better the talent the more it raises the bar for the work you can do and the environment it creates.   A strong culture starts a flywheel of good things and your best hires are the ones that come to you.

It all starts with having the guts to be just a little bit different.

Update: Amazon Kindle Marketing Strategy

In: Strategy

30 Aug 2010



As an update to an earlier post on the Amazon Kindle’s marketing strategy, Jeff Bezos did an interview on Charlie Rose (watch the video here).  Amazon is well known for its patience and Bezos offers a few clues on how the company plans to compete.

  • There is an avalanche of iPad fast-followers coming. Look for this space to get quite crowded but competition should help lower the price.  As a result, Kindle will not become another me-too device.  Bezos is firm in his commitment that the device will only be used for reading.
  • Lowering the price point. $139 gets you the basic reader with WiFi ability.

Here’s how Amazon is differentiating it based on product features:

  • e-ink display and the ability to closely mimic the experience of reading a physical book
  • Very long battery life
  • Smaller form factor

The Kindle is poised to take advantage of the ADD that we all have for using electronic devices.  The New York Times is running an on-going series around this called “Your Brain on Computers“.  Potentially shutting off Twitter, Facebook, and the Angry Birds game to focus on reading might prove to help those who struggle with staying on task.

Amazon is clearly aiming at only the serious reader who happens to be an early adopter.  Given the psychographics of such, these folks do have a fondness for gadgets and might be willing to tote an iPhone, a Blackberry, an iPad, and a Kindle for good measure.  The challenge will be hitting the Early Majority of customers who are pensive about shying away from physical books but realize that they’ll have to use a digital reader at some point.  The low price of the basic Kindle reader could help and lessen the fear of being burned but the lack of convergence poses a big problem.

Game time: For Amazon to succeed, they absolutely have to deliver a brilliant customer experience for reading.  Going head to head with Apple on product design is not an enviable challenge.  However, if the company can build an experience and kick off a word of mouth among bookworms, it could carve out a nice niche.

Bonus: At around 37:00 minutes, Bezos gives his take on the future of marketing with social media.  In short, conversations happen faster and we’re relying on our network to recommend us products and services.  Bezos says to look for R&D budgets to grow and marketing budgets to shrink as companies realize it’s too expensive to market junk.

Social Media Etiquette

In: Theory

23 Aug 2010

Source: http://www.flickr.com/photos/fredcavazza/2564571564/sizes/m/
We almost all now belong to a platform for some sort of online conversation, whether it be Facebook, LinkedIn, Twitter, Digg, or (insert favorite social media website).

With the recent ability to set up groups or “channels” around special topics, users can create meeting halls to hold conversations.

Have you ever noticed that most of these are dead zones?

Usually all activity is produced by the one ignorant marketer who keeps posting press releases about “Company X Revolutionizes Technical Process with Keyword Phrase Nobody Cares About”.  Over time, the room becomes empty as this person keeps posting useless drivel and reports back to their supervisor that yes, they do indeed have a social media presence. ‘Don’t worry boss, I’m on it’.

This same mindset of spray and pray has carried over from traditional media. Instead of a print ad in a trade publication, we now have it as a post on one of these websites. It seems the mindset is, “Let me shout at you about stuff you don’t care about, whether you gave me permission to or not.”

I don’t think these marketers fully appreciate how much they alienate those online. This deafness coupled with the ease to join and create online networks results in a lot of wasted opportunity and brand equity.

Here are three tips to avoid making similar mistakes in your efforts using social media to communicate within your network:

  1. Spam people about your company/cause/cousin’s makeup line. You might friend me on Facebook and now I’m receiving constant invitations to “Like” the cosmetic line your cousin is selling. I’m a male. Don’t you remember that when you met me? If in doubt, look at my profile photo. It has a fake moustache Photoshopped in. You can’t miss it.  Put a bit of thought into your audience and really make sure it passes the “who gives a rip filter”. However, if this cause or product does indeed match up with a shared interest, then yes I might be interested to know. Otherwise, you just look rude.
  2. Talk about your “exciting” new product launch. This is especially prevalent on LinkedIn. You might join a group around a topic like high-tech marketing. The next thing you see is a consultant group pushing blog posts. My most recent email update from a LinkedIn group on the topic of high tech marketing included no less seven different posts by the same author around the topic of interns over 40.  Not one of these dealt with high-tech marketing and nobody else had posted anything to the group. Over time this quickly chokes out the honest dialogue between marketing managers trying to get honest answers to problems.
  3. Provide no value back to the community. The best people to follow on Twitter are the ones that put out a helpful link or tip. They know Rule #1 of Marketing is that the audience wants to know what’s in it for them. Hey, we’re all self-centered and impatient. Make me better at what I do or am passionate about and now you’ve earned my trust. The savvy marketer who does this consistently over time establishes themselves as a though-leader within the community.  Good things come to those that lead.

Using social media is really like going to a cocktail party.  We’ve all been pinned down by the person who goes on and on about their dull job and has nothing interesting to say.  Yet, there are those that are interesting, curious people and they quickly have a small group surrounding them, laughing and discussing things.

I think we all know who we’d like to have a drink with.

Top 10 Reasons Not To Do a Start-Up

In: Technology Startups

6 Aug 2010

The original garage of Hewlett Packard: Source HP Website
With the downswing in the economy, everybody is preaching the idea of doing start-ups. There is a general uneasiness that traditional companies can no longer provide stable employment. Entrepreneurship looks better than ever to many people.

On the fence? Below is a list of the top ten reasons on why you should not do a tech startup.

  1. You wanna be rich. Not often does an entrepreneur get into start-ups for altruistic reasons. That’s called nonprofits.  However, very rarely does focusing purely on the exit and big money work out. Instead, you’ll want to focus on building a killer product. With customers or a big community comes money. Remember start-ups are a lifestyle and sometimes that means being very poor for awhile. Also, watch how quickly you get diluted down if you start down the VC funding route.
  2. You wanna be famous. We’d all like our picture on the cover of Inc. magazine and articles espousing how our brilliant marketing strategies led to champagne in hot tubs. Again, probably not gonna happen. What will happen is you will be attending conferences, working sales leads, making PR pitches, and networking for awhile with nobody knowing or caring who you are.  That’s okay. Take advantage of the anonymity to outflank your competition.
  3. Nobody has thought of this yet. Sorry but every business model has been done. You might have a unique twist but if you want it to get adopted your solution has to have a trail back to something that’s known. I’ve seen many founders truly believe they have the secret sauce. This results in paranoia and a failure to appreciate that the world is full of quite a few smart people who know how to compete. Insights into trends is great but it’s execution on that unique idea that wins.
  4. Your boss is an idiot. This may be true but leaving a poor work environment to do your own thing is not a good idea. You will undoubtedly long for the days to write another TPS report when things get rough. The passion to do tech start-ups has to be for working on a great idea and building a remarkable experience for a customer.  This is what helps sustain you on the days it’s not much fun. Besides, a poor boss always teaches you more than a great boss by showing you how not to manage.
  5. You’ve worked for Microsoft, IDEO, Google. Great but that does little to prepare you for a tech start-up environment where you don’t have the army of engineering talent and marketing resources of a large, rich company. Also, nobody knows or cares who you are now (see #2). You’ve left the king’s court and now have to go off and settle new lands. Read like crazy and find mentors who’ve done start-ups to help ease the transition and realize that you have to learn a totally new set of skills.  (and oh by the way, your day doesn’t end at 5 with weekends off anymore)
  6. You love writing code/designing/building. This can be invaluable in early, early stage ventures. Realize over time to grow the business you’ll most likely have to give that up or hire someone to run the business part. Are you comfortable exchanging control to keep doing what you love?
  7. You’ve managed teams before. See #5. If your new company is big enough to have “teams” than you’ll be stressing about funding and talking people out of quitting to take better paying jobs with less demands. To lead successful teams, you’ll have to be exceptional at selling visions of grandeur. Study Steve Jobs and his famous Reality Distortion Field.
  8. You wanna be your own boss. The freedom that comes with doing your own thing is priceless. The trick is managing yourself without the motivation of performance reviews. Set a schedule with tasks and milestones and stick to it. Remember it’s execution not ideas that wins.
  9. You don’t think sales is hard. Early on, everyone has to sell to some degree. You’re selling to investors, potential partners/employees, and most importantly customers. Sales really is tough and you have to be comfortable with rejection over and over. Don’t underestimate the skills required to do this well and appreciate those individuals that have them.
  10. You don’t like change. Your first idea, no matter how brilliant, probably isn’t right. As you collect data and reach milestones, you’ll have to adjust your strategy accordingly or face extinction. As William Faulkner said, “You have to be willing to kill your darlings”, which means you be ready to let your ideal vision go based on the data. Randy Komisar has a great book dealing with this very issue called Getting to Plan B – watch a short video here.

Now this list is not meant to discourage but rather add a dash of healthy skepticism to your enthusiasm or a potential business partner. (This list is based in part on my experiences of being involved in start-ups and researching early stage ventures.)

Is Your Idea a Factor of 10X?

In: Technology Startups

14 Jul 2010

Recently, Netscape and Ning founder Marc Andreessen did an hours worth of Q&A at Stanford on everything from consumer electronics to venture funding.  One key component he mentioned for start-up success was the idea of 10X.

To quote:

Is there a 10X change happening in the technology landscape?  Is something 10X faster or 10X cheaper or 10X better?  And if it’s not 10X then we as VC’s and entrepreneurs have to ask ourselves is it really worth doing?  ….For a new company to exist it not only has to bring a product to market but it has to be so much better it punches through the sort of status quo.

Great advice and an easy litmus to apply to new ventures.  One thought to add would be the idea of morphing a concept until it gets to be 10X better.  If you comb through different tech success stories, you’ll see that companies typically had an idea, got a bit of funding, and then got to Plan B where they really hit their home run.  The first idea or prototype certainly wasn’t a 10X improvement.  Why most tech start-ups blow up is they spend all their money without any room for Plan B.  A solid market validation exercise would help narrow the bull’s eye (more on this in upcoming posts) and solid metrics for evaluating success are key to leave a little gas in the tank to pivot the strategy.

Note: I’m a huge fan of Stanford’s eCorner website.  Not only do they have great speakers come in, you can download and watch the videos for free through iTunes.  The quality of the speakers is impressive and the diversity of topics makes it so almost anyone in the startup/tech arena can find something of interest.  Get the experience of being on the Stanford campus with none of the overhead.

What Is It You Do? Make It Quick

In: Strategy

23 Jun 2010

The New York Times recently ran a fascinating story on technology and distractions called, “You Brain on Computers”. Read the full story here.

Much like a quick hit of a cigarette, researchers are finding that people crave the constant buzz of a fresh email or new tweet.  It goes on to state that as much as we’d all like to believe we can multi-task, we’re not that good and vastly limit our effectiveness.  Case in point: only 3% of people who claim to be “great multi-taskers” actually are when subjected to tests.

In short, we’re constantly distracted and we’re starting to like it even though we’re not good at it.

Here’s the wake-up call for the tech marketer: Nobody cares about you. Nobody will read your white paper. Nobody wants to sit through your 30 minute software demo.

I think the opportunity to market a technical product or service effectively hits on three key areas, regardless of the medium:

  1. Story. Tell a great story in your collateral. Use visuals to represent a concept wherever possible. Pick a theme and build your product or service around one of these timeless narrative topics.
  2. Edit. Ruthlessly. Write like Hemingway.
  3. Follow the Arrow. Sure your engineers can build anything. Resist the urge to tell all the features. Give just one benefit. Then another if the conversation with the customer lends itself. Then another and thus widen the conversation much like an arrow piercing a target.

Our daily lives are destined to be more filled with static. If you want to get ahead, look for methods to market that align with the reality of how we live today.

All or Nothing for Kindle – 3 Ideas

In: Strategy

16 Jun 2010

I recently did a quick post on Amazon’s Kindle and how it’s time for all or nothing.  In the B2C world, product development cycles are brutal.  While Kindle definitely had the first-mover advantage, it’s feeling the hot breath of the iPad breathing down its neck.  Honestly, Apple may just have too much brand momentum and past experience to be stopped.

Why?

Apple is an old pro at the fast-follower game and watched the mini-disc and early MP3 devices fail miserably at a seamless user experience.  They smartly came in and redefined the category, built the platform, and owned the portable music market.  Next up was phones – and while they only own 15% of the mobile market, you can see the broad influence the design and the Apps Store has had.

However, it’s not as hopeless as it may seem.  Let’s do a quick thought experiment if we were tasked with a marketing strategy for saving Kindle in order of importance:

  1. Redesign the damn thing. It’s no secret that V1 of the Kindle was pretty ugly. V2 is better but not revolutionary. Kindle needs an elegant form-factor and user interface that makes getting on the web for checking email and Facebook enjoyable as well as for reading books. We expect convergence in our mobile devices. No short order for sure.  In the meantime…
  2. Pick a niche. Kindle has to find what Geoffrey Moore calls a “beachead”.  Much like Allied solders needed a foothold when invading Europe in WWII, the Kindle has to find some area to land on and begin moving inland towards mainstream adoption.  Seth Godin points out that they may have found it by the fact it’s used in large part by women. Now, it’s time to use this research for developing a serious evangelist program – Oprah’s book club?  A genre where you get to pick 10 titles for free? A way to extend the device through partnerships into another offline passion (knitting, cooking, gardening)? Know thy user, surprise them, and give them a reason to talk.
  3. Developers. Developers. Developers. Here is where Apple is weak. They’re getting a little too pretentious for developers and have been alienating this core group of innovators much like what happened in the 80′s.  While the App Store has made millionaires overnight for viral apps, there are thousands that languish or don’t get approved at all for lame reasons.  (See this great essay by VC Paul Graham on Apple’s Mistake). Amazon can ramp up a developer outreach program for ways to develop innovative apps around downloading, reading, and learning. Turn it loose with great support and a killer Software Developer Kit (SDK) but do as little as possible to get in between users and programmers.  Instead, come up with ways to help developers market their application. Build an online community of users that offers prizes for “most-loved” or “changed my life” type apps.  Let programmers keep 100% of the profits – now there’s a real incentive. Use these to build some buzz with consumers and developers…

And finally, play up the fact that the Kindle is not on AT&T. Enough said.

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