This particular blog is geared towards the “Inventor” looking to launch a B2C product. In the 80’s and 90’s before the days of PVR and Sirius XM, traditional advertising was much simpler and more effective. Placement of a TV or radio ad on a major station resulted in mass exposure to a wide demographic. Technological advances including PVR, streaming TV and music, etc., have made it much more difficult to find a massive audience with traditional advertising. Therefore, the landscape has changed to digital media. While digital media can be a more cost effective form of advertising, consumers are bombarded with content and ads all the time. There is far more competition for eyeballs resulting in a much more difficult task to create an effective targeted marketing campaign.
The general bias of the inventor is “If I build a great product, people will buy it.” In the technology space, the equivalent would be the programmer who believes that creating a great app with better functionality than its competition will result in massive downloads. These individuals pour a ton of capital into R&D, production and bring in product specialists to make the best product money can buy. Unfortunately, creating great products is not enough to ensure success. In fact, I believe a mediocre product with a strong marketing campaign has a much better chance of success than a great product without one.
Inventors often underestimate the difficult of creating a brand. Trying to create a marketing campaign without experience is generally a recipe for failure. If your strength is building a product, I strongly advise bringing on marketing expertise. This can be accomplished in a few ways:
- If you have sufficient capital, hire a marketing executive that has experience creating a successful digital marketing campaign in your industry. This allows you to give up the least amount of equity and brings on the complementary expertise you need most.
- If you don’t have sufficient capital for a full-time hire, bring on an equity partner with marketing expertise in your specific industry.
- Consider the licensing strategy, white labeling your product so other companies brand your product under their own names and designs.
- Engage a distribution partner to look after marketing, manufacturing and distribution of your product.
Options 1 and 2 are riskier, require more capital, but ultimately offer the greatest rewards. They allow you to maintain your own brand and offer the highest margins. Options 3 and 4 are the less risky options, require less capital, but lower the ceiling when it comes to rewards with lower margins. You potentially lose your identity and branding when products come to market. If your ultimately strategy is retail, bring on the expertise of an individual that has managed campaigns through that channel.
It is very important for entrepreneurs to understand their strengths. When it comes to running a business, there are very few people that are good all facets of the business: invention, manufacturing, logistics, marketing, distribution, and retail. Trying to manage everything on your own significantly increases the risk of failure.
In my experience raising capital, the two biggest weaknesses in investor presentations that result in no investment are the Go To Market strategy and unrealistic financial projections. Financial projections are usually weak because entrepreneurs don’t typically hire CFOs or seek financial advice at an early stage. With respect to marketing, to use an example with technology presentations, companies often present a user acquisition cost of say $5 per user (the average marketing cost for a user to download your app) and a generic slide with a budget of say $5,000 per month with the following bullets:
- SEO
- Viral video campaign
- Facebooks ads
- Banner ads
Investors screening presentations are looking for the following:
- Detailed experience of management team in each of your marketing strategies and previous successes
- Specific details on each strategy
- Assumptions on how you arrived at the $5 user acquisition cost
- Budget for marketing and use of proceeds
Gone are the days of “If you build it, they will come.” In this day and age, companies need to fight much harder to grab the consumers they want. When starting a business, having a clear strategy for marketing and the expertise required is a must for anything to get off the ground. If you do not have the budget for it, you should consider options 3 and 4 listed above to reduce the risk of your venture. This ensures you can focus on what you do best – building great products.
