A Startup CEO Primer for Scaling Marketing
Editor’s Note: This is part II of a three part series on scaling startup marketing. Read part I here. Stay tuned for future posts or download the complete Startup Marketing eBook here.
Startup CEOs are notoriously birdbrained when it comes to marketing. There, I said it. Now that I have your attention, let’s do something about it. Marketing done right can be a powerful engine of sustainable revenue growth and competitive advantage. Marketing done wrong leaves you with a handful of pretty Web pages and predictable CMO turnover: such a waste. The choice is largely up to the startup CEO, because the startup CEO defines the role of the marketing department. The startup CEO sets marketing goals. And, the startup CEO hires the CMO.
As a career startup executive, I’ve confronted many of these marketing challenges from both the CMO and CEO side of the equation. At my current marketing management startup, Markodojo, I routinely have to wear both CEO and CMO hats simultaneously. I can say with confidence that simply changing hats can cause dramatic changes in how you approach these core marketing decisions. This second post in the ABC’s of scaling startup marketing series takes a look at startup marketing from the CEO perspective.
Marketing the Discipline vs. Marketing the Department
The root cause of many startup CEO marketing misunderstandings is confusion over the role that marketing plays in a business. Many people, including most startup CEOs, think marketing is synonymous with advertising, branding or demand generation. The reason for this is that marketing communications is the most visible aspect of marketing to non-marketers. However, marketing communications is only one component of the marketing mix. Marketing is first and foremost a process that every business must do, whether or not it has a marketing department. In plain English, marketing is the process of getting the capabilities of the company aligned with the customer to deliver value and make money. The marketing management process consists of optimizing the four components of the marketing mix: product, pricing, promotions and channels, to achieve this end. Since promotion is the most visible marketing activity to the outside world, most non-marketers tend to equate marketing solely with promotion. Startup CEOs should not.
As much as 50% of marketing as a discipline may happen outside the marketing department. Any marketing mix activity can be done by the marketing department, facilitated by the marketing department or done by a separate department altogether. Should product management report to the CMO? Should the business model tilt toward marketing or toward sales? Should marketing managers be compensated on revenue? The design, role and goals of the marketing organization are critical startup CEO choices. They should not happen by accident.
The Marketing—Sales Continuum
Certain marketing activities almost always reside outside the marketing department, the most obvious one being sales. From the marketing discipline perspective, selling is one-to-one marketing. It requires entirely different resources and skills from say online advertising, a kind of one-to-many marketing. Depending on your business, direct sales and online advertising might be highly interchangeable. How much you spend on each is a marketing mix decision: a decision made by the Startup CEO. The quality of that decision relies on an understanding that sales and marketing are two flavors of the same thing: the marketing mix. From a departmental perspective, marketing and sales look like apples and oranges. From a strategic business perspective, they look like two different kinds of apples.
Most startups will find themselves spending more than 50% of revenue on sales and marketing. But, how much should you spend on sales versus marketing. And, how tightly integrated do these two functions need to be? Should you have a VP of Sales and a VP of Marketing, or a VP of Sales and Marketing? As our little advertising example showed, sales and marketing are often interchangeable. This interchangeability goes well beyond promotion to every element of the marketing mix. For example, do you have standard pricing or negotiated pricing? Do you deliver a standard product to every customer or do you propose a custom solution?
Where your business falls on the marketing-sales continuum depends on a combination of price, complexity and risk. High price, high complexity, high risk purchases entail more sales intensity. Low price, low complexity, low risk purchases entail more marketing intensity. Purchases that sit in the middle require a balance of the two and need tight sales-marketing integration. In any event, these are not simply questions of how much to spend on marketing versus sales. These are questions about your fundamental sales and marketing model and the answers define the kind of business you want to be. Something only the Startup CEO can decide.
Product Starts with a P
Product is easily the most important marketing mix P for most startups. In a technology startup, product is the startup’s reason to exist. As such, the tech startup CEO will often designate roles like VP Product or Chief Product Officer. Make no mistake; this is a marketing role, regardless of the organizational structure. Consciously or unconsciously, a startup CEO who designates a Chief Product Officer is making the decision that product is such an essential element of the marketing mix that the success of the business depends on it; therefore it should report to the CEO. The reporting structure, however, does not change the nature of the role. Whether Chief of Product reporting to the CEO or VP of Product reporting to the CMO, this executive is responsible for making sure the product is aligned with the needs of customers to deliver value and make money, i.e., marketing.
Invariably, the most difficult challenge of scaling the product organization in a software startup is balancing the required mix of marketing, technology and domain knowledge. It can be extremely hard in some sectors to recruit product managers that have all three, forcing you to compromise one for the other. This issue does not arise in say consumer packaged goods, because pretty much everyone understands potato chips, so the only skill required of brand managers is marketing. However, aligning business capabilities (technology) to customer needs (domain) to deliver value and make money (marketing) requires all three in a technology startup.
The organizational choices of the startup CEO and CMO to strike the right balance between marketing, technology and domain knowledge are among the most important strategic marketing decisions. When one dimension significantly outweighs the others, the entire product organization gravitates toward it. For example, enterprise business process solutions such as ERP and HCM require extensive domain knowledge and often force the creation of a Chief Product Officer. Simple productivity tools, consumer apps, games and enterprise applications targeted specifically to marketing or sales are likely to gravitate toward the CMO. Finally, complex infrastructure, platforms and development tools usually drive the product organization closer to the CTO, because the customers themselves are engineers.
Another common compromise found in technology startups is to split the technology-centric product responsibilities into a product management group and the marketing-centric product responsibilities into a product marketing group. This approach is often characterized as ‘inbound’ vs. ‘outbound’ product marketing. However, the startup CEO and CMO should never lose sight of the fact that this is an organizational compromise made to simplify recruiting. It’s always better to have a product manager who can walk and talk, i.e., who has marketing, technology and domain knowledge. They are just hard to find.
The Long vs. Short Game
Perhaps the most difficult startup CEO marketing challenge is patience. Startup CEO’s are incredibly impatient animals. Everything needs to be done yesterday. When you hire an engineer, new product features start materializing almost immediately. When you hire a sales rep, you see immediate outbound activity. And depending on your sales cycle, the connection between sales activity and sales results can be very short. Business results are quick and tangible. This is not always the case with marketing. Even the promotional marketing mix P, which tends to be the quickest and most tangible of the four, presents serious challenges to startup CEO impatience. For example, content marketing, seo, and social media all have very slow burn rates. They are incredibly powerful once you have them on your side, but they require up-front investment and take months, if not years to scale. Paid marketing channels, such as advertising and events are much quicker to ramp, but they can be prohibitively expensive to a startup. Alternatively, if you don’t invest in marketing with a certain degree of faith in the future, your startup will not accrue marketing leverage. Acquisition costs will be high, capital requirements will increase, and you will have fewer dollars to invest in product development and infrastructure as you scale.
Most startup CEO’s have no problem playing the long game when it comes to the product P. But if you have created a great product and no one knows about it, then it is worth exactly as much as the code it is written in. Think of it this way: marketing mix elements have a diverse spectrum of timelines, product being one of the longest. To manage the product timeline, we speed things up with a minimal viable product. Then, we use methodologies like agile development to improve the product incrementally. You should take a similar approach to every long term element in the marketing mix, and apply modern marketing management methodologies like agile marketing and growth hacking whenever possible. Lastly, revenue is the final measure of success. If we can tie revenue to a particular upgrade or feature, that is fantastic. If we can’t, we can’t. Short term wins like paid search where you get immediate results and can tie them to specific marketing decisions are great. But, if that is all you do because you are too impatient, then your long term goals, like revenue growth, competitive advantage and company valuation will suffer the consequences.
Startup CEO Tips for Hiring the CMO
The CMO hire is a tough startup CEO decision. Not only is it difficult to determine what kind of CMO to hire, but it is also difficult to determine when to hire a CMO—the right timing being clouded by the short game versus long game fuzziness of marketing. CMO requirements change dramatically as a startup scales from A-round to B-round to C-round and beyond. Albeit possible, it is rare to find one individual that can span the entire range.
A-Round CMO Considerations for Startup CEOs
As pointed out earlier, the A-round startup CMO is likely to oversee a marketing budget of $250K-$500K in the beginning, possibly approaching $1M by the time a B-round is raised—including the CMO. This simple financial constraint implies that the A-round CMO must be incredibly hands on: a doer. Pure managers need not apply, because the CMO alone will comprise 20-50% of your marketing capacity. As the startup CEO, you might think “Why bother to hire a CMO at this stage?” You might be right in this regard, but you should also consider the long game. Achieving product market fit, creating your message, bootstrapping demand generation and evangelizing your product to the industry: these critical A-round marketing challenges are not junior-level.
The primary hiring criteria for the A-round CMO should be how well the person complements the rest of the executive team, particularly the startup CEO. If the startup CEO’s background is pure technology with limited sales and marketing experience, then it’s probably a good idea to find an experienced A-round CMO. If the startup CEO is the de facto chief product officer with solid experience in marketing, then you might be able to get by with a marketing director focused on the promotional marketing mix P.
B-Round CMO Considerations for Startup CEOs
The main marketing challenge of the B-round CMO is the discovery and development of new revenue streams to drive growth. Backed by a small marketing team and budget to do the actual work, the most important B-round CMO skill is creativity and strategic marketing leadership: the thinker. In most cases, tackling the B-round growth objectives without a marketing leader is startup suicide. Even if the startup CEO has the proper marketing skills, he will not have the time to develop and implement the marketing strategy. B round CMOs might just be the hardest to hire, because marketing, technology and domain knowledge are all in very high demand. If you need to give on one of them, technology is probably the best candidate, because marketing expertise and domain knowledge are essential to developing a sound market expansion strategy. Whatever skills the CMO is lacking should be filled in by key marketing directors the next level down in the marketing organization.
C-Round CMO Considerations for Startup CEOs
By the time you reach the C-round, the marketing organization will have grown into multiple functions with complex cross-functional teams, and as such needs serious parental supervision. The C-round CMO should be a manager first and a marketer second with particular skill at managing high growth environments: the builder. While the A-round and B-round CMOs can get by with ‘management by walking around,’ the C-round CMO needs to be thinking about marketing process, organization structure, collaboration and alignment inside and outside the marketing department. Ideally, the B-round CMO has laid a solid foundation on which to build: engines of marketing innovation, core automation of the customer journey, low-overhead marketing management processes, and the like. The C-round CMO is tasked with taking it all to the next level with a much stronger focus on marketing ROI. Revenue growth is essential, but the C-round CMO will be hiring lots of people and spending buckets of cash. It must be spent well to maximize marketing leverage.