Good overview from the folks at Elegant Themes, here.
Now, Kickstarter and Indiegogo are often thought of as a way to fund new ideas and companies, but they can also be powerful product marketing tools, creating pre-sales of a new product.
There’s one thing I found in common with all launches: Marketing funds didn’t necessarily play a part in the success of the product. I’ve seen products released without a big budget do incredibly well. I’ve seen products launched with a big budget do poorly.
Hence, there’s one statement I’ve heard over the years that personally drives me a bit batty: We don’t have the money to launch the product.
It is utter nonsense.
Obviously, the ideal is to have a great launch budget! However, don’t get yourself tangled up on the need to have money. You actually don’t need much to market successfully these days. In fact, you didn’t need much 20 years ago, either.
What you really need for a successful launch is some smarts and, most importantly, the intention to have a successful launch.
The “smarts” part of it comes from experience, which can be learned.
As an example, many years ago, I launched a product at a startup which had nearly zero revenue. With very little in launch funds, we built an amazingly successful brand (we didn’t even have to pay our costs up-front, as we negotiated payment terms with most of our suppliers”).
I spent a big portion of my budget on a ton of surveys of potential customers. This allowed me to get my positioning and messaging right. I spent a lot of time on this part. This allowed me to have the confidence to push hard on the rest of my marketing, because I knew what the customer wanted, and how to get the customer to buy the product. (You don’t even need to spend a lot of money doing surveys. You can do them yourselves at the local mall, or use Google surveys. Or, go to online groups where your typical customers congregate and ask them to do a survey using Surveymonkey.)
The second thing I did was heavily leverage the press to write about the product. These days, press is “dead”, but that doesn’t mean you can’t still use similar communication channels. There are still many writers out there that people read, such as blogs and sites like CNET or ZDNET.
(In order to determine the correct communication channels, one does what I call a “customer work-back”. You define the customer, and then work back where they get their information and where they purchase. This allows you to a) determine the communication channels and b) the distribution channels. For example, if your customers are system administrators in mid-sized companies, you simply find out where they get their information from and where they typically purchase. And there’s your basic communication and channel strategy.)
The rest of the launch was pretty much block-and-tackling. This product was going into both online and retail, and there is a bit of detail around these two parts that aren’t worth getting into in this blog.
But the broader idea was that we did a lot of homework up-front, got our messaging nailed down, used free communication channels to promote it, launched the product with a lot of confidence, and the rest was history.
So here’s some quick ideas as to how you can marketing very inexpensively these days:
– Websites are ridiculously cheap, so you don’t need to spend money on expensive designers. You can create a stunning website yourself in a day or two using great WordPress themes like Avada. Use free graphic services like logomakr, TheNounProject, picmonkey and pixlr. Or, use inexpensive services like 99designs, guru or elance. And don’t bother using ugly stock photos. There are so many incredible free images out there, it will make your head spin. I won’t get into all the tips and tricks. This stuff is pretty straightforward given a will to get something done.
– Mail, mail, mail. Use a good mailing service like GetResponse or Aweber to really build your fat funnel and do things like using auto-responders. Learn about this stuff. It really works. All of the big email marketing companies have tons of videos. You can also look at classic direct mail, which, believe it or not, still has a place.
There’s a funny thing about mailing; you don’t always see the results directly from the mailing, but you see it elsewhere. The key thing is to focus constantly on quality communication out.
– Use leverage wherever possible. The incredible thing about the internet economy is the idea of leverage — one keystroke can get your message to many, many people. QuickSprout has a useful infographic which describes the leverage strategy for low-cost marketing. It focuses on using communities; incentivizing users to share; using affiliate programs; doing blogger and youtuber outreach (as well as guest blogging); using your existing network; getting your friends to share; and getting out there in person.
– Learn to hustle. Don’t be embarrassed by getting out there and hustling for business. Most people respect a bit of hustle. People who don’t are not the people you should care about.
I remember many years ago going to a tradeshow with a few boxes of product along with me. We were a tiny startup with zero funds. So I entered as a tradeshow attendee, found an empty table and started selling product, right there on the tradeshow floor. No, I didn’t pay for a booth. But darn it, we needed the money, so we sat there and paid for our trip, selling right there on the floor. Then, after selling all of our product, we spent the rest of the day hustling on the tradeshow. I would also go to user groups and sell directly to user group members — an easy way to generate lots of cash. I even snuck into major industry conferences through the back-door without paying (okay, that’s a bit bad, but we really had no money), and then would hustle business at the conference. Tradeshows are a great place to hustle, especially if you’re selling to other companies (such as an OEM product). Go directly to the booth and ask for the person “in charge of …”, and if they’re not there, get their contact information.
I admit, I have a bit more hustle than most people, and I often wonder why people are too scared to get out there. But I suppose I don’t have a big problem with rejection. If you do, get over it. All businesses have a lot of rejection, but if you don’t get out there and hustle, something terrible will happen: nothing.
– Barter. Do the $5 marketing plan.
– Use LinkedIn and send free gifts. The most powerful business networking tool is LinkedIn. Or, use other data services to find potential target customers. Then, send the target a free gift, and ask for a meeting. At one company I work with, this “gift” strategy yielded some of their best leads. Another company I’ve worked with would send an email to a target customer, offering “to buy them lunch” (really, a $20 gift card). The exchange was to do a survey, which ultimately lead to the customer being educated on the product. $20 for a highly qualified lead? That’s not bad.
There are many other ideas. The point is not to get tied up in “we have no budget”. That’s very dangerous (and false) thinking. Some of the most successful tech companies companies today have had no marketing budget (Facebook, DropBox, AirBnB and many others). What they had was a great product or service, a lot of desire and a lot of persistence. And in the end, these three ingredients have no equal when it comes to success.
Did you know that Google has an app to help startups market? I briefly reviewed the app, and while it’s basic, it’s usable by pretty much anyone involved in internet marketing. You can download it for free on the Play store, here.
I recently had a conversation which seems to repeat itself time and again — an entrepreneur wants to start a business, calls me for some basic advice, and then we get into some of the details. Invariably, we get around to the subject of valuation.
Since this is a blog where you can feel comfortable asking “stupid” questions, I’ll make it safe for you. So, here’s the reality: Your high-tech business is worth as much as you can get for it.
There’s no formula. There’s no cash flow model which can justify a startup’s valuation. There’s just what you can get.
Jim Clark, after successfully starting Silicon Graphics, went on to start his next venture, Netscape. He arbitrarily set a valuation in the mid-teens (I recall it being around $15 million, but my memory is a bit vague). Of course, this is a ridiculously large valuation, but he could get it. He did the same thing again with WebMD. He got the most he could get from the market.
Others may not be so lucky.
How it all happens is the art of raising capital, and for better or worse, a major job of the entrepreneur.
Pre- and post-money
As you probably know, key terms are pre-money and post-money (often referred to as the “pre” and “post”). Pre-money is the valuation before you raise money. Post-money is the valuation after you raise money.
It’s dead simple: Your dilution (how much of the company you give away) is simply determined by dividing the amount raised by the post-money valuation. Let’s say you value your business at $4 million (the “pre-money”). You raise $1 million (the “raise”). You now have a $5 million post-money. Divide $1 million by the post-money ($5 million) and you see that you gave away 20%.
Often, for pre-revenue startups, founders raise angel money first, which then converts at the valuation of the Series A. The Series A is the first real round of funding, and startups hope that it is an institutional round. In my opinion, it is more favorable for the entrepreneur to raise angel money to convert at the Series A valuation. However, angels sometimes would rather go straight into a valuation discussion.
Valuing a tech business that has revenue
After your business is running a while, you will likely want to look for an exit. If you’re like most entrepreneurs, you’ll tell your investors that you want to go public, but really, most tech companies get bought rather than go through the cumbersome IPO process.
What valuation you get is, again, a subject of some considerable subjectivity.
The acquirer (and the bankers), will typically go with a combination of models that justify the valuation.
There are three primary models used in valuing companies:
– Discounted-cash flow
– Comparable public company valuations
– Precedent transactions
Discounted-cash flow (DCF) — if you don’t know what this is, let the banker worry about it. In tech company valuations, it’s not a vital model, but it’s heavily used in non-tech industries, where the business is predictable and well-established (or, similarly, in tech companies where there is an established and predictable business). The DCF simply presumes a set of cash flows occurring annually over a future period of time, assigns a terminal (end) value of the business, and then discounts the cash flows to the present (because cash in the future is worth less than cash today). How it discounts is based on old mathematical models dating back literally 150 years, but is now automated in any spreadsheet program. Again, it’s not worth worrying about too much.
Comparable public company valuations — A more important metric, this method uses the valuation of public companies in your space to determine how the broad market is valuing the business. In technology, there are a number of multiples that are used, but often, a multiple of revenue is employed. You can get an idea yourself of comparable public company valuations by assembling a list of public companies in your space, and looking up the multiples on any major finance website (Yahoo has a nice section that shows the key multiples for any company, under “key statistics” on any public company quote page).
What companies you choose for your valuation has an impact, but be careful not to BS too much by only selecting the hot companies in your space, as any reasonably intelligent acquirer knows very well what companies are comparable to yours.
So, for example, if you’re in the security space selling an advanced firewall product, you might choose Symantec, Palo Alto Networks, Fortinet and FireEye (not the best examples, but I’m just giving examples here). Take the core valuation metrics (multiples of cash flow or EBITDA, multiples of revenue, etc.) and then calculate the average and the median, and apply it to your own numbers.
Key multiples typically used are multiples of revenue and multiples of EBITDA.
EBITDA is a very important metric for some buyers, in particular private equity and growth equity investors. [As a side note, I will add that Cash Flow is not the same thing as EBITDA, and this is important to remember for working through your financials and your strategy. I got caught in a trap years ago between Cash Flow and EBITDA. I was heavily Cash Flow focused (specifically, Cash Flow From Operations — CFFO). For technical reasons not worth getting into here, my EBITDA was poor, but my CFFO was wonderful. I thought I could explain it away to investors. I couldn’t: they simply cared about the EBITDA. It was shortsighted on their part, but in the end, it was my fault for not realizing just how important EBITDA was to these institutional buyers. I’ll never make that mistake again.]
Plenty of bankers publish information on financial metrics for prospective clients; Pacific Crest Securities has one of the better models, published every few weeks. I’m sure if you contacted them, they’d be delighted to put you on their mailing list.
Precedent transactions — this is the most important valuation metric, as it is what other companies in your space are being acquired for today. Any banker has access to services which provide this vital data, but you’ll likely have your own list of companies that have been acquired, what they got acquired for, and what the multiples were. Again, you’ll apply this to your own numbers. Keep track of deals in your space.
After looking at precedent transactions and comp public multiples, you’ll have an idea of what your company should get valued at. A good banker is very, very useful in this process.
Now, different buyers have different metrics. Financial buyers typically pay on a multiple of cash flow (perhaps 3–6x cash flow for a highly leverage acquisition, perhaps 7x-10x cash flow for a non-leveraged situation, sometimes more for something that’s important to them). Strategic buyers (in other words, non-financial buyers) are all over the map. If they believe it’s strategic, the sky, literally, is the limit. I’ve seen numbers that are stratospheric. I’ve also seen numbers that are surprisingly low.
In the end, get what you can get. This is where the art of negotiation really, really matters.
Of course, never lie and fudge your numbers. You can get in awful trouble post-acquisition, and besides, do you really want to make all that money in a sleazy way?
So good luck and feel free to contact me if you want any advice in this process.
3/15/15 Important update: It has now been determined that Blue Bell was not responsible for these deaths. WSJ article here. And, in that article “Mr. Marler said he thought Blue Bell had responded appropriately once it knew its products were linked to illnesses and deaths.”
My criticisms of Blue Bell are not relevant now; it seems they have done a laudable job of turning this around, and the news cycle has moved on to other things.
Still, below is a good overview in general of dealing with crisis PR. The original post, below:
Ah, people don’t read this blog and pay the penalty. If the BlueBell people had read How to Not Get Killed in a Press Interview, or my post on Intuit, they would have understood the dangers of not getting ahead of a potentially vicious news cycle.
BlueBell is dealing with a problem, that if not handled correctly right now, will blow up in their faces. You see, a few of their “novelty” ice creams have been contaminated with Listeria bacteria, and three people have reportedly died.
Died. As in Dead. RIP. That sort of thing. Now, these were people in a hospital, and were likely older and had compromised immune systems. But they still died.
So here’s BlueBell’s response: a quaint post on their front page:
Followed by some bland talk:
For the first time in 108 years, Blue Bell announces a product recall….One of our machines produced a limited amount of frozen snacks with a potential listeria problem….When this was detected all products produced by this machine were withdrawn. Our Blue Bell team members recovered all involved products in stores and storage…This withdrawal in no way includes our half gallons, quarts, pints, cups, three gallon ice cream or the majority of take-home frozen snack novelties…For more information call 979-836-7977, Monday – Friday 8 a.m. – 5 p.m. CST or click here.
The CEO, Paul Kruse, just isn’t handling it right. Look at the tone of some of his remarks to the press:
“They feel that this one production line we use here is what might have caused the problem,” Kruse said. “It’s a complicated piece of machinery, it’s been down for about a month and a half, and what we’re likely going to do with it is throw it out the window, so to speak.”
Mr. Krus, with all due respect, three people have died, apparently because of your company’s mistake.
Where is the “devastated at this loss”, “we have immediately taken action…”, “we have formed a team to directly work on the problem”, etc., etc.
The playbook here is fairly straightforward. The perfection of crisis PR handling was achieved by Johnson & Johnson chairman James Burke, during the Tylenol poisoning tragedy in the 80s. The case studies are numerous, but the key is:
- Immediately come clean on everything you know. No obfuscation or corporate speak. No excuses. Plain, simple English. What happened, why it happened. If you don’t know, the answer is “we are aggressively investing this issue”.
- Apologize and show genuine sorrow over the deaths. Ignore the lawyers, who are telling you not to admit fault. Your brand is at risk.
- Immediately and actually handle the problem. Not just “we’re going to throw out this machinary”. Something is wrong in your quality procedures if this machine was even allowed to continue in operation. Bring a reputable quality inspection team to go through a top-to-bottom review of your factory. That kind of thing. And then communicate this aggressively.
- Detail the steps you are taking to make sure the problem never occurs again
- Continue an active communication cycle
- Fill the vacuum with credible information, through the press and through advertising. “Our state-of-the-art factory”, pictures of people in clean suits working on ice cream, that sort of thing.
I love BlueBell. In fact, on our Sunday evening family dinners at my house, it’s the standard treat we serve. I wish them well.
But PR screwups like these, not handled correctly, can cause more damage than one would imagine.
Mr. Kruse, get your act together. You’re no longer an ice cream maker. You’re a news maker.
This book is free for the next couple of days and is avialable here on Amazon.
If you’re involved in hiring people, I highly recommend this great book by Patrick Valtin, a good friend of mine who is one of the top HR consultants in the world.
Ok, I really had a hard time controlling myself on this one. This parody of bad stock photos by Vince Vaughn is classic.
If you’re heavily stressed as a business leader, the business is running you — not the other way around. Chances are you’re not prioritizing correctly, and you’re not delegating.
I’ve worked with CEOs who put in an insane amount of hours and don’t do any better than CEOs who work a fairly normal schedule (granted, usually 50–60 hours a week).
One could describe a leader as someone who establishes and communicates clear goals, gets the right people in place, gets everyone working toward these goals and focuses on what’s important.
Culture is an additional ability of leadership. Culture is less important, actually, than fanatical execution on a clear set of goals. Ping pong tables, beautiful offices — nice — but not vital.
The core is figuring out where you’re going, getting the right people going in the same direction, and focusing on what’s important.
Sounds easy, but it’s an art. It’s why great CEOs are paid a lot of money and are in high demand, because it doesn’t come intuitively or naturally to a lot of people. However, it can be learned.
Teaching leadership skills, however, isn’t the purpose of this blog post. I’m just going to tell you what’s important.
There are just a few things that you have to do really, really well in this business. If you do those well, everything else follows.
Many years ago, one of my early mentors told me, “if you just focus on creating a great product, support it well and do a good job on PR, you should do just fine.”
Not bad advice. I’ll expand on it with a bit of my own experience.
Here is the scale of importances in running a product or services business.
1. The product or service.
2. The quality of the product or service.
3. Support/customer service
4. PR and marketing
Assign KPIs to each area (you can’t manage what you can’t measure…). At the beginning of every week, go through each of these areas by yourself. And then go through these with your senior staff at your Monday morning staff meeting.
The funny thing is that as an executive, you may find yourself spending a tremendous amount of time keeping people focused on doing the important things. And, you may find yourself burdened down with things that aren’t that important. People add complexity to everything they do. It’s a natural tendency, but it generally means that they are not confronting what really needs to get done (either because they don’t know, or because they don’t understand something).
If you establish an organization with this set of importances, you’ll increase your chances of doing well.
The mistakes I’ve made are when I’ve reversed the priority — too much emphasis on finance, or sales, etc. The product (or service) is the most important thing to focus on (read my other post, The Product is All). Give the accountants the problem of worrying how to book the revenue. Give the sales and marketing guys the problem of actually getting the revenue. And get the product guys firmly lined up with what’s needed and wanted from the market, and delivering it.
And lead a less stressful life.
Net Neutrality is a Good Thing (what is pretty mindblowing is how thoroughly the entrenched and very powerful vested interests — the telecommunications and cable lobby — got their posteriors royally kicked).
How it happened I’m not too thrilled about. But the devil is in the details.
I think the best, most reasoned response comes from the EFF, an organization that you can put a high degree of trust in when it comes to internet policy.
I loved Bob Lutz’ book, Car Guys vs. Bean Counters. It is a virtual ode to product people. Lutz is one of the most important people in the history of the American car business, because the supremely ugly American cars we saw back in the 80s were made by committee, but the great cars that we’ve been seeing lately have come from product folks.
It brings to mind a memory as a young marketing manager starting out on my career. I was standing outside with an old geezer of a sales guy while he puffed away on his 50th cigarette of the day. “If the dogs won’t eat the dogfood, it won’t sell. I don’t care how many pretty pictures you put on the packaging”. Sage advice.
The product (or service) really is everything. It seems like an obvious statement, but it’s of such vast importance that if it’s not made a key importance, you’ll never succeed wildly.
People talk about the magic of Apple. Why? Because their products are incredible. Customers don’t know you through your income statement, nor your legal department. They know you through your products.
The worst sales team in the world is transformed into the “greatest” sales team with a good product. A weak marketing department is suddenly on fire with a great product. PR comes easy with a great product.
So what is your product or service? How do you make it?
Good product development starts with a something that is actually desired and in need. This does not come about through theorizing. It comes about through talking to customers and prospective customers. One of the most successful consumer products of all time came from an in-home visit.
I rarely released a product without doing extensive surveys to understand customer needs and wants. Pragmatic Marketing, which runs product management and product marketing seminars, has an acronym – NIHITO. It stands for Nothing Important Happens In The Office. All this means is that a product manager who is sitting in his office, not talking to customers, is not getting the real story as to what’s actually needed by the customer.
It’s good advice.
Sometimes you have an absolute genius (or you are one yourself) who can think up the most amazing product ideas that are all wildly successful. Consider yourself lucky if you have a spare Steve Jobs lying around the office.
But the reality is, most companies don’t have geniuses like this. You need to work for it. You need to talk to the customer.
If you talk to the customer, the product ideas roll out naturally. If you don’t, you’ll find yourself arguing theoretics in meetings at the home office. I’ve been there too many times.
So talk to the customer and figure out what they want. Then document it and use the information when you talk to the people who make the product (the engineers, the developers, whomever is making the product in your company).
In an online world, you can do surveys for nothing. We used to run surveys for $20k-$30k just per product. Now, services like Surveymonkey.com or Google’s consumer survey service make the cost negligible. Give survey respondents a chance to win a gift card, keep the survey short and sweet (longer surveys lose respondents), create questions that have meaning (don’t ask stupid questions because some guy in the office insisted – ask questions that will give you a real answer) and most importantly, get it out and use the data. There are also tricks, like using Google’s keyword finder to locate what people are looking for online right now.
It sometimes occurs that product developers (or others) don’t believe survey results. This is normal and I’ve had this problem. You don’t need to be combative (“I have the survey and you are an idiot for not believing it” doesn’t always work). Developers really do have good ideas, but the broader point is that the customer cannot be ignored in the process.
There are examples when surveys were a bust. However, on further analysis, it was because the surveys didn’t get the right answer. A famous example is the battle between Steve Jobs and the marketing department at Apple. The marketing folks had surveyed customers about what type of printer they wanted. They asked for a daisy-wheel printer (for those of you who weren’t around back then, this was basically a typewriter attached to a computer). Jobs, in his typical fashion, refused to agree and argued that customers would want a laser printer. He won the argument, and there was the birth of desktop publishing and so much more.
However, the problem is fairly clear. Reading through the results, the customers were asking for a letter quality printer. They didn’t know about laser printers, they knew about daisy-wheel printers. The survey could have been done quite a bit differently with much different results.
Surveys can also take the form of surveying your competition or using secondary research (meaning, outside analysts firms that create research). Secondary research is often a bit dangerous. Whole fortunes have been lost following the lead of an outside analyst. You need to keep your wits about you and try to filter out what’s important. However, analysts do create a lot of noise and they are worth listening to. Just use your own common sense.
You can also just use a prototype or a beta to figure out if customers will like the product. A famous story is Dropbox. The creator, Drew Houston, created a YouTube video of the product, still in prototype form (this is the idea of a Minimally Viable Product). People loved it. The rest was history.
Doing surveys to define products is a bit of an art form and takes some practice. But the key point is – don’t design products in your own little bubble. Get the customer involved with the product creation process and you’ll win.