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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Are Customers Your Best “Marketing”?

Comments (12)

The recurring theme of the power of word-of-mouth marketing came several times for me yesterday.  My day started out with an email from Raj Bhargava, the CEO of StillSecure, that pointed to an unsolicited positive review of StillSecure’s StrataGuard product on an end-user’s blog.  Later in the morning, I had a meeting with a new consumer product company with a cool invention that was created by a friend / neighbor.  They had built 25 prototypes and had 24 of the 25 users of the prototypes rave about the product.  At the end of the day I had a meeting with a $400k two person software company that is trying to figure out how to accelerate their growth.

I had the word-of-mouth theme in my head from the StillSecure product review post.  In my first meeting, I listened as the entrepreneurs told me they needed a $2 million financing to do the first production run of the product (1,000 units) done, get a marketing guy hired, do “marketing”, build channel relationships, and see if things worked.  If they did, they either needed $0m of additional financing or $8m of additional financing, depending on how they rolled out the next wave of marketing.

In the second meeting, the founder told me that of all the marketing approaches he tried (trade shows, print ads, cold call of industry lists), the only one that was working effectively was Google AdSense.  In this meeting, he suggested that he was going to try a bunch of new (and the same) things.  When I probed, I found out that his existing customers are ecstatic with the product, the company has plenty of leads, but he can’t figure out how to motivate the leads to quickly turn into customers.

In both cases, I kept hearing the word “marketing” used generically.  I despise the word “marketing” – it’s often the weakest link in a startup company.  “Marketing” is vague and non-specific, often poorly executed and measured, and usually a huge waste of money relative to the output.  Oh – and while there are plenty of “tried and true” approaches (that any marketing consulting would be happy to charge you plenty of money to explain to you) – the effective approaches have been evolving a lot lately, especially as user-generated content becomes ubiquitious.

Several years ago, I suggested to my portfolio companies that they fire their VP of Marketing and hire a VP of Demand Generation (it could be the same person if the VP of Marketing was willing to accept a quota and meaningful, measurable variable compensation.)  Hopefully, this VP of Demand Generation understands the incredible power of having your customers so happy with your product that they’ll talk about it online. To see an example of this, FeedBurner has been doing a great job of highlighting this with their Publisher Buzz blog where they link to posts from “people who kind of dig FeedBurner.”

I suggested to both companies that I met with that they stop talking about “marketing” and instead focus on getting their existing customers to tell the world about their product through blogs, references, online interviews, and at cocktail parties (these are both products that the target customer will ultimately start talking to a friend about over a drink). 

Try something – for 24 hours, substitute the phrase “lead generation” for “marketing” in every conversation you have and see what happens.

  • http://www.majid.info/ Fazal Majid

    And then you have companies like TiVo that have incredible customer loyalty but still manage to snatch defeat from the jaws of victory thanks to grossly incompetent (yet incredibly expensive) marketing.

    They would be far better off firing their entire marketing staff, and would be profitable without the ineffective TV advertising.

  • http://www.safecarservices.com Gator

    What a great post! Our company went through the exact same phase, and with less seed money. Amen to Brand Ambassador Programs! We found that asking for “help” was far more effective than asking for “sales” as a young company. It reaffirmed our faith in humanity – people love to help young companies – people hate to be sold. “Brad, Would you buy our product please?” vs. “Brad, I want to give you a free membership & use our service. Can you use it & give us your candid feedback so we can improve, and if you love it, could you write a post about it if you have time?” Its hard to say no to person who is asking for help, easy to say no to a sales pitch.

    Also, if they have pricing & your CPA pretty well set, there are performance-based marketing orgs for virtually every channel & marketing tactic – online and off. Even if you dont have a track record they will usually run tests based on a fixed CPA. We spent a year hunting them all down. They are always looking for new things that have pricing & CPA models that work.

  • http://www.kudosworks.com Herbert Ong

    Brad,

    Our company has a service called KudosWorks.com that lets businesses automate word of mouth marketing by first capturing testimonials in a variety of multi-media formats and then accelerating customer-to-friend referrals with reward campaigns. As charter members of WOMMA (word of mouth marketing association) we have always known that the best way to gain new clients is by giving your customers the tools they need to recommend you to their friends.

    I would love the opportunity to discuss this with you further.

    Thanks
    Herbert Ong
    Founder and CEO
    Genuosity Inc
    http://www.kudosworks.com

  • http://www.Allen.com Cliff Allen

    Cultivating referrals from satisfied customers is the least expensive — and most valuable — source of qualified leads a company can have. In most of the companies I’ve worked with that are shipping real products to paying customers, half of the new customers come from referrals.

    The challenge for a start-up is how to get to that point.

    Initially, a start-up needs to use traditional sales techniques to close orders from skeptical customers who have never heard of the company and its products. Once the company has achieved success selling to these risk-taking customers, the question becomes how to sell to the next type of customers. This next group typically wants to see that a company is recognized by the media (in advertising and editorial coverage) and frequently wants a referral from a satisfied customer they know and trust.

    This second group represents the greatest growth opportunity for the company, so it’s important to handle this transition well.

    Advertising and public relations activities (typically called “marketing”) are valuable in helping this second group of potential customers feel comfortable buying the company’s product. However, the starting point for generating revenue is capturing and processing leads from media, trade shows, blogs, and, of course, customer referrals. When lead management is handled by the sales organization, there is a greater likelihood that leads can be nurtured into prospects, many of whom will turn into customers.

    Treating lead generation as part of the sales process has the added benefit that it can easily be included in the metrics used to measure the effectiveness of the marketing and sales process. This results in a higher return on the marketing and sales investment.

  • Vince Wicker

    That is an interesting post. As I sit back and think about the marketing and business development spend in 1999 through 2001, I can’t help but wonder how much was wasted effort (I’d wager 94%).

    We’ve realized that — especially in enterprise-class companies. That’s why we’re building a lead generation service for these companies. Not only are marketing VPs a bit flawed these days (most are very smart people who either have no idea what their customers really want or cannot remember what push-back from a customer felt lie and as a result are out of touch with the pain thier front-line sales team is going through), “lead generation” still takes place via over-engineered or not-so-well thought out programs (take your pick).

    I’m what you might call, a “Recovering Marketer.” Funny thing is, I almost forgot why I phrased it that way — until I listened to “The Persuaders” a “Frontline” piece on marketing and branding (its still out there in streaming audio in 4-parts on their site). The report was great but to listen to the marketers talk (if you can really call it that), I was nearly physically ill. They are missing the point and shoveling more BS our way than ever before.

    The thing they (and the non-lead generation-minded marketing teams of which you speak) are missing is the fact that if marketing is to be effective, if it is to generate leads, it has to be simple, clear, and most of all relevant.

    Lead generation by itself isn’t enough, developing programs, opening one’s ears, and engaging in (paraphrasing Cornell West), “a constant state of self criticism” when reviewing your offering’s relevance (by product and industry sector) is the only way to organically grow top-line revenue.

    I write about this because it’s the white space we’re going after (but this is not a commercial). It’s really sad how much they’re missing the mark.

    Too many people on your side of the investment ledger invest and leave the lead generation up to the wrong people. We’re just trying to help them live up to their job description. If that happens, we all win; their products sell, your investments pay off, and the interruption a target company endures to hear a “marketing/lead generation” message is worth the opportunity cost (from an attention theft point of view).
    Thanks for the post. I hope people don’t overlook this as a “soft” post, it’s important and more people should think about this.

    Keep up the great thoughts and great work.

    – Vince

  • http://www.ads.typepad.com Zach Coelius

    First, great blog. You deserve all the good things that have been said about it.

    The question I have about your post is that while customers can be awesome sources of leads, testimonials and ideas, their ability to drive sales of a product is a cycle driven process. X people can only drive 10-X or whatever sales and then the next bunch has to join in. But when you only start with a few customers the process of getting from 10 to thousands is a few cycles away. On the other hand if you can start with a few thousand, getting to ten thousand is only one cycle away. And when you have a company that needs to get to 10,000 sales sooner rather then later to beat the burn then you sometimes can’t afford to wait for those first cycles to happen organically. That’s why you see companies spending so much money to get that first big batch of customers that can then evangelize the product. For a lot less money then latter on they get to a few cycles and save a ton of time. I agree with you that word of mouth has a lot of power but I would argue that it is just another tool in the chest of a great marketer. I think your problem with marketers is not the skill itself but rather people who suck at it. Steve Jobs is happy to be called a marketer because he is great at it. And as you can see with the Nano, a perfect WOM product that sells itself, Steve is still spending a ton on money marketing it.

  • http://www.startupfever.com/?p=28 Startup Fever

    Brad Feld on Word of Mouth

    Brad Feld doesn’t like the term “marketing”:
    I kept hearing the word “marketing” used generically. I despise the word “marketing” – it’s often the weakest link in a startup company. “Marketing” is vague and non-spe…

  • http://www.emergencemarketing.com/archives/2005/11/marketing_in_startups_is.php Emergence Marketing

    Marketing is not just about demand generation – it’s also about listening

    Brad Feld has a great post on how marketing in startups is broken. He despises the word “marketing” because it is often the weakest link in a startup company. He goes on to say:“Marketing” is vague and non-specific, often…

  • http://mobileanalystwatch.blogspot.com John

    Nice post. As you state, lead gen should be the end-goal. And customer word-of-mouth is essential. However if your audience is the enterprise then one of the biggest challenges for a start up (and established companies as well) is getting approval – from you guessed it – your customers’ marketing department to be a reference. The effort is well worth it if you do it…

  • http://www.clipmarks.com adam moskowitz

    any suggestions on how to ‘get’ the early adopters to spread the word?

  • http://www.smartsensorsystems.com Cindy N-J

    This is great info for me. Our first product should be ready to ship in mid-March and all of our prototypes are currently committed to the lab and a beta user plus three that will be delivered the second week of February. We’ve had several recent callers who would have bought it if we’d have been able to ship from inventory or within a month. Now’s a great time to focus on demand generation with this incoming group of first users.

    Thanks,

    Cindy

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