As a startup exec, a consultant and someone with a degree in marketing, I’ve seen hundreds of companies and how they think about marketing. Some companies heavily invest in it, some companies ignore it. But there is one common thread and rule that I’ve seen almost-always works:
Here’s the headline:
You don’t need marketing until you are at $100 million in annual revenue.
In fact, if you insist on marketing before this level, your company probably is in trouble.
Think of marketing as a “last resort”
Marketing is a great way for a company to differentiate its product or get it in front of as many people as possible. For example, there are a lot of cars out there in the market place. The automaker's commercials allow a consumer to help decide between a Ford or a Honda.
But, when was the last time you actually made a purchase decision off of direct marketing?
Probably not in a long time, if ever.
The reason why is marketing is often not the driving factor for a consumer to make a purchase. Marketing can help influence a purchase, but it will very rarely cause a purchase.
So, if you are at $100M in revenue, then you can afford to spend money on something that doesn’t have a direct cause on a purchase.
If you’re below $100M, there are other places to invest the money
Heavy marketing spend on a lower-revenue startup typically means one of two things:
#1: Sub-optimal product-market fit
The companies that truly experience rocket-ship growth almost never spend money on marketing. They just don’t need to because they’ve found such product-market fit, they can barely keep up with demand.
If you’re having to pay for customers to come through the front door, then you might now have found the perfect product-market fit.
#2: Your current offering could be improved
If you already have customers, then you could be tracking your retention rate, or churn if you are SAAS. As a startup, there is no marketing cheaper than retaining your already-won customers.
If you are struggling to retain customers, or your existing customers aren’t “raving fans” of your current offering, it means there’s probably some improvement necessary.
After all, if your product is truly adding value, then your customers will be your marketing.
So, if we’re not advertising sub $100M, then what should we do?
Companies that are under $100M shouldn’t be advertising, so what should they do instead?
Well, companies that truly “make it” have two things they do instead that aren’t marketing.
#1: Have a “north star” metric that focuses on retention
Retention should be the key focus of your company. If your numbers show you are retaining your customers, then it means you’ve found product-market fit and that you should grow organically.
So, the key metric your company should care about is retention.
For example, Airbnb’s north start is famously number of nights booked. That metric will increase if they retain consumers, no matter what.
#2: Repeat that metric obsessively
It’s fascinating to talk to ex-employees from hyper growth companies. Ask any of them, even a decade later, to repeat their company’s north star. You’ll find that they can do it on command, and immediately, even after all these years.
It’s because the Nort Star has become burned into their brain as the key thing to focus on.
But, what that means for your customers is your employees will be obsessed with figuring out how to improve their experience.
In practice, you’ll be tempted to spend on paid marketing. It’s an easy way to acquire customers. The much harder, but better, thing to do is to step back and ask why you need to acquire those customers. There’s probably something wrong with your offering
If you find yourself in that position, focus on the North Star until your offering improves. Once you’re there, then you should be ready to start moving on $100M and ready to start paid marketing.
Dean Woods is currently a startup exec by day and an entrepreneur by night. Prior to his current job, Dean was a top performer at a top management consulting firm. Dean graduated with honors from The Wharton School.