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Marketing is a really confusing profession. When I was a senior in college, I was so excited to get a job offer and I told me friend about it. His questions to me were, “What is a marketer? What are you going to do? Is it like advertising or something?” Truthfully, I had no idea. I was just happy to even get a job — this was in 2004 when the job market wasn’t so hot.
But even after I took the job and even years later yet after going to business school and working in marketing at Google, I still didn’t really understand what marketing was. It seemed like a series of activities. Like running ads. Or putting on events. Or writing copy.
In fact, what marketing is didn’t click for me until many years later when I was running my own startup and could start to see the big picture of what I was trying to achieve with marketing. In addition, it would be years after that before I really understood what were the most important things to consider in marketing and what could generally be ignored? There are so many terms in marketing. There are so many things you can track in your funnel. It’s all overwhelming.
So, over the last few days, I’ve put together a handful of videos on marketing 101 for startups. Just 3 terms will get you 90% of the way there. And things you need to consider as a business owner w/ regard to those 3 terms as well are covered in these videos.
What is marketing?
Three simple terms in marketing:
What is a payback period?
What is the cost to acquire a customer (CAC)?
What is lifetime value of a customer (LTV)?
Why cohorts are important in looking at your lifetime value?
Wrapping up the three key terms in marketing
Today I just wanted to get the basics of marketing out of the way. But now that we have three terms that we can use, subsequent marketing posts can get a lot more interesting.
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But I find some of the nuances of portfolio construction hard to grasp in writing. So, today, I thought I’d try something different. I made a super raw video that walks through the rough math of startup investing. I did this with 1 take and no editing – so bear with me.
This video is geared towards both founders and investors. I think going back to first principles of portfolio construction helps in understanding a lot of the psychology of what investors are looking to achieve. It may change how you pitch your company. Or heck, it may even help you decide that raising VC money is not for you, and that’s ok.
And for budding investors, this will help you understand what you’ll need to think through. I’ve met so many new microfund managers and angel investors who haven’t run through various scenarios of portfolio construction. And that’s surprising to me!
As if you didn’t have enough to subscribe to, subscribe to our Hustle Fund YouTube channel for more walkthroughs and interviews on a variety of startup topics.
I think we’re all pretty exhausted. Exhausted from hearing the same things over and over about COVID-19 and people losing their jobs. On top of that, entrepreneurs are probably tired of hearing about how VCs are slowing their investing or are waiting for predatory valuations. These times can be quite frustrating.
Many people don’t know that in November 2008, I left my cushy job at Google to start a company. This was just a couple of weeks after Sequoia wrote their first RIP Good Times memo that we have all seen multiple times at this point. By 2009, it was impossible to fundraise. I went into meetings with investors, and they would all be checking their stocks. It hurt them to see their net wealth drop 50%. It hurt me that no one was paying attention — every investor was so distracted. I wouldn’t be able to raise money for 2 more years. I did odd and end jobs to try to bring cash in the door. I had a whiskey categorizing gig. And critiqued resumes of aspiring MBA students. Among many other things. Of those, the most amusing was the time when Xerox Parc paid me to have one of their user experience researchers follow me around for days.
Although 2009 was a frustrating time, in retrospect, it was actually a good thing I couldn’t raise, because I had no idea what I was doing. And the school of hard knocks taught me how to really build a business — to the point of perhaps too much confidence. These days, I don’t ever worry about not being able raise money from others or find a job again. Even if my VC fund partners kick me out, the rough days in 2009/2010 taught me *how to make money*.
That is an amazing feeling that only comes about from being stuck with the unfortunate luck (or fortunate luck) of starting a business during dark times. And that is my wish for all of you — that you, too, can find that even if things feel rough this year.
Though it might not seem like a blessing in disguise, tough times force you to focus on what is really important and to track your cash carefully. All too often in the last two years, we’ve seen businesses that don’t make any sense rise in valuation to enormous levels.
During these times, I’m going to move my next blog posts away from fundraising and back to fundamentals. How do you bootstrap a company? How do you get customers when you have limited cash? How you keep the lights on? Basically — how do you BUILD a company.
Faster sales cycles
One of the biggest mistakes at the beginning of my entrepreneurial career was that I spent too much time building and not enough time selling. After making this mistake over and over with failed side projects, I ended up getting incredibly frustrated that I was wasting weeks or months only to come to the conclusion that I didn’t have a great product to sell.
This frustration forced me to think about selling product immediately even before building anything. So when we started building out LaunchBit (which was basically our 8th side project), the very first thing I did was to sell without a product. I did so with my personal PayPal account. There was no website. No product. I cold emailed a bunch of ppl with my value proposition and started charging. And guess what – they sent me money to my personal PayPal account. I was shocked that anyone would do this.
What does it take to operate in this market?
This is a chaotic time but also an exciting time, because incumbents are easily dismantled in times like these. As I wrote to my portfolio companies the other day, you’ll see large brands / companies get purchased for pennies on the dollar, because they won’t be able to slim down to a skeleton crew fast enough and act nimbly. Small companies – with even 2 or 3 people — may even be able to acquire some these companies! Or win their business. What wins in a good market doesn’t always win in a bad market. And understanding this is key.
So what does win?
Fast sales cycles win. Now is the time to find out if you have a fast sales cycle. Can you pre-sell what you have even if it’s not built? Can you continue selling what you do have? Are people buying? And if they’re not buying, do you think they will buy in 12 months when this is all over? Or is your market dead going forward?
If you have no business today, there are going to be two camps of companies — 1) ideas that will be viable in 6-12 months and 2) ideas that won’t be viable at all post COVID-19.
If you’re in the former camp, then maybe you need to get a job or a consulting gig and wait out the market. There is no shame doing that. Desperate times call for desperate measures. Maybe this is a good time to refactor your code business and optimize your product and processes.
If you’re in the latter camp, you need to rethink your company. People don’t like change. They don’t like starting over. They don’t like starting new business ideas. But you have to be honest with yourself and make a hard pivot if you think this is not going to work.
And I’m going to be brutally direct here. If you’re in either of these camps — whether this is a temporary or permanent shift — it’s not worth fundraising now. I see all these companies pitching travel ideas and retail ideas and other ideas that have been dramatically affected by COVID-19, etc.
THERE. ARE. NO. BUYERS. IN. THESE. MARKETS. RIGHT. NOW.
Don’t waste your time working on something that you literally can’t sell to anyone. The truth is would-be investors want you to be able to put their money to work right away — not to sustain your livelihood for 6-12 months until your market comes back.
Scrappy founders win. Being lean and nimble to be able to pivot – even if just slightly – is really critical in these markets.
If you realize that you need to make some drastic pivots / changes to your business, the good news is that there ARE a lot of market opportunities — both short term and long term that you can get started in right away.
This is something that large companies burdened with big teams cannot do. Wield your strengths.
Frugal founders win. Lastly, it’s frugal founders who win in this market. A year ago, if you had raised a lot of money, that would’ve been considered a strength. And if you still have that money, it is still a strength – cash is king.
But if you have a high burn rate — that has quickly become a huge liability and a big team also prevents you from being scrappier, because coordination amongst many people is hard.
So the tables have a turned a bit. This is a natural advantage for teams who struggled to raise money and were forced to become ramen profitable over the teams who may have raised millions of dollars. The latter teams can still win, but very few of these founders will be able to make the right decisions to cut down to becoming frugal.
Need help with cash management? I’m holding an AMA on cash management on Wednesday April 15th at 4pm PT. It’s completely FREE but we are capped at 1000 participants.
