This will seem like an odd question to those in the software and hardware technology business who actually value marketing! I happen to fit into that category myself, of course. If you’re of this viewpoint, it’s tempting to answer this question with the obvious “as much as possible!” But in more than a few cases that’s not realistic or even wasteful. Many folks in our business
1) don’t value marketing highly
2) are without unlimited funds to fund marketing
3) may need less marketing than others do.
The most important of these scenarios is 2), because most companies don’t have enough money to spend the theoretical maximum on marketing that they might if their resources are unlimited. This makes planning and tradeoffs with other aspects of the business critical.
Early on here I’m going to define what I mean by marketing, since many folks use the term very differently. I use the term probably as widely as any, because what I believe are “marketing skills” touch many parts of a company’s operations. The most common use of the term is for demand generation activities. Less common (but no less important) is what I will call the product planning side of marketing. This is the part of the marketing function where someone with a market-focused skill set and training leads, or at least plays a significant role in the definition of the product — ensuring the product delivered is based upon real market desires and needs. In this article I will discuss the need to invest in both of these roles in a number of scenarios.
How much you look like your customer
One of the first things to look at, especially in the startup phase, is how much do you resemble your customer? Everyone likes to think they understand their target prospects, but in my opinion only two types of folks have the best chance of understanding the prospective customer well:
1) Product Developers who truly BELONG to their target audience (Such as engineers at HP in the early days when they sold engineering instruments–what we call selling to the “next bench”. Another example: a software company selling developers tools in a market where they spend a lot of time buying similar tools themselves. Basically we’re talking about making products to solve your own pain point)
2) Professional Product (Marketing) Managers with formal/significant on-the-job training to understand, segment and size markets – and act as the “voice of the customer”.
So unless you really ARE the customer that you’re trying to sell to, proceed without professional, market-focused product management at your own peril. It really doesn’t matter whether we’re talking software, hardware or semiconductors, mobile software or SaaS. But an added caveat is that the more B2C your business is, the more complex and fragmented your target market likely is, as well as the corresponded product planning task. Since every software and hardware technology company executive is also a consumer, it’s easy to have a dangerous level of confidence in your own market knowledge.
How big and complex your market is
The smaller the market segment you’re focused on, the more homogeneous your market likely is (or you’ve picked a very bad market to target!). Conversely the larger a market is, the more likely that it’s complex and fragmented. You’ll often see small software companies be very successful without any professional marketing at all, in a tight market segment where the founder came from the market segment as a user. This is true of both the upfront product planning role (with the founder as de facto product manager) and the downstream demand-creation aspect–little demand creation is needed because in a tightly-defined market the prospects are usually very easy to identify and sell to directly.
Larger markets are more likely to include distribution channels in the business model. If the great majority of cases, channels demand a lot of demand creation to “pull-through” prospects via distribution partners. In larger and more complicated markets I have seen the “no-marketing” approach repeatedly tried and fail miserably. Sometimes this model is tried due to ignorance, sometimes because of arrogance and sometimes it’s simply a lack of resources to adequately staff and fund a professional marketing function. The product usually doesn’t hit the mark upfront and you end up with founders or a couple of sale reps cold-calling with little or no marketing support. This is a real uphill pull in large markets that almost never leads to reaching critical mass before time has run out.
High (or low) product price point
The price you’re charging for your technology product and service goes a long way towards defining whether you are a “marketing or sales-driven” company, from a revenue creation perspective. It’s pretty simple if you think about it. The lower your product price is the less economic those expensive sales reps become. If your price point is low enough, you may not be able to afford even the least expensive type of inside sales reps that you can find. On the other extreme, if your price point is very high, your market segment may be very small in number of customers and it may not make sense to have any classic marketing demand creation activities at all. At this extreme you are practicing what I refer to as “door to door marketing”; essentially your sales reps are doing the demand creation through cold-calling. While this is somewhat inefficient, it can make sense in small markets with high price points.
Most companies will fall in between these two extremes, requiring some combination of marketing demand creation and sales force. In the case of a product priced on the lower end of the scale, that might mean a heavy investment in demand creating marketing folks & programs, in conjunction with an inside sales force focused on servicing the inbound demand. If you’re a startup with product that is on the higher end of the perspective, this might mean a marketing department with just a couple of people along with attendance at a few trade shows, some modest online promotion and social media marketing–all playing second fiddle to a better-staffed and funded outside sales force. The various sales/marketing investment combinations that make sense will be on a sliding scale which depends in good part on your product price point. One thing I’d like to add is that this section has been discussing only the demand creation segment of the marketing mix, not the product planning aspect. The product planning requirement is largely independent from price point, although lower prices are often associated with larger, more complex markets that demand more product planning resources.
Desired or required growth rate
How fast do you want to grow? Everyone always wants to grow as fast as possible, right? Sounds like a silly question–until you understand the amount of money required to sustain a specific growth rate. And not in all cases does it make sense to try to grow “as fast as possible”. Your company might be early to a market segment where it might take some time for the market to catch up with your innovative new technology. Especially given the realities of the technology marketing lifecycle, in these early stages the marketplace may not respond very much to marketing investments. Or maybe the company is bootstrapped and making too large of a marketing investment might jeopardize the company’s stability, if it doesn’t pay back immediately. Technology companies can also end up in a situation where the product isn’t quite ready for primetime, so going slowly might be well advised. These are just a few common examples; there are many reasons that “going as fast as possible” may not make sense at a particular point in time in a software or hardware company’s life.
But let’s assume for a second it DOES make sense to go as fast as possible. Then ratcheting up your marketing demand creation activities is one of the best ways that a company can quickly adjust that growth needle. While it might take quite a bit of time to hire new programmers or engineers (or even marketing personnel) it is generally quite possible to quickly (and in some cases instantly) increase your marketing spend. For this reason, demand creation marketing can be used not only as a long run tool to lift growth, but also as a “fine-tuning” tool to adjust your short term growth rate. Examples of when this might be important is a public technology company which needs to make its quarterly numbers, or an early stage software or hardware company that’s in a race with competitors to grab early market share. Once again, this section has focused on the demand creation side of marketing. The product planning side is also VERY important to growth rate; in the long run it’s probably even more important than demand creation. But the ability to effect the growth rate through product planning is analogous to turning an aircraft carrier, vs. demand creation marketing’s ability to adjust quickly and impact growth — which you might compare to a nimble motor boat.
Exit goals and time horizon
Last but not least, how soon to you need to get where you’re going? The sooner the exit time horizon, the more marketing intensive a company’s approach will likely need to be. That’s because if you want to exit quickly you need to turn up the crank on EVERY aspect of your company that influences growth. In all but the most extreme cases of a breakthrough technology that stands on its own, marketing is a very important aspect to maximizing your growth rate. As I stated above, the longer run growth lever is generally controlled by the product planning portion of marketing, while in the shorter timeframes your demand creation activities have the larger effect. Don’t forget that demand creation also has long term implications for your growth rate–we call that Brand Building. So if you’re creating a company (or a long run plan for an existing one) that has an aggressive exit event in the plan, make sure that you don’t underestimate the marketing dollars needed to support this goal.
There’s a quick look at some of the factors to consider when deciding how much to invest in marketing for your company, including both both product planning and demand creation marketing activities. The discussion has by necessity been of a qualitative nature; the specifics of each company needs to drive what the actual staffing of your marketing department should be as well as your marketing spend. What factors do you consider when formulating your marketing budget? Post a comment to fill us in on your approach.
If you liked this post please share it with you colleagues using the “share” buttons below: