Category Archives: Startups

Crowdsourced Marketing:  Hey, We Can Put on a Show!

The plot of so-called backstage musicals usually centers around the production of a show, often created to avoid imminent financial peril, as you’d find in many of the depression-era Our Gang movies.  Invariably, as the characters realize their predicament, someone shouts the solution, “Hey, we can put on a show!”  (The ticket sales from which presumably generate enough money to save the day.)

The purpose of this post is to discuss one of the more serious forms of software marketing desperation, which I refer to variously as a backstage musical, a bake sale, or what one might more contemporaneously call crowdsourced marketing.

Since I’m mixing more metaphors than someone burning the midnight oil on both ends, let me quickly elaborate on each:

  • Backstage musical. Think: “Jimmy can tap dance, Mary can sing, and John plays the trumpet.  We can put on a show!”
  • Bake sale. Think: “You make the brownies, I’ll make the cookies, and Anne can make the cupcakes.  We can have a bake sale!”
  • Crowdsourced marketing. Think: “We can have a Sales town hall, set up a Slack channel, and call a meeting with Product to figure out how to generate sales.  We can crowdsource marketing!”

In all three cases, the presumption is basically, if only we had professional performers, bakers, or marketers, they’d know what to do, but since we don’t – well, let’s throw it together the best we can.  For the Our Gang financial dilemma or the classroom fundraiser, that might be good enough.  For your marketing department, it’s not.

I’ve spoken to CEOs who ask:

If we have all the performance data and conversion rates by (marketing) channel, and we understand that things aren’t purely linear but opportunity generation happens over time in response to numerous touches, and we can test the effectiveness of a various messages used in various segments, then how are we supposed to take all that information and decide what to do?

If only, I think, you had a strong head of marketing.  That is their job.  In most marketing organizations, it’s not their only job and they may have delegated a lot of it to the head of demandgen, but wafting through all that data and all those ideas, building a plan, getting buy-in to that plan from sales, selling it to the CEO, and maybe the board — well, that’s what of head of marketing is supposed to do.

You can’t hire an agency to decide it for you.  You can’t decide it in a board meeting or a call.  The CEO can’t decide it after looking at some reports.  The CEO and/or board can and should question any proposed plan, but making that plan is the head of marketing’s job.

And, let me be clear, it’s hard.  Which is precisely why no one else can really do it.   It’s a mix of art and science.  It’s a mix of re-running proven campaigns while testing new hypothesis.  It’s a mix of proven messaging and new messaging to address new trends, products, or partnerships.  It’s knowing the channel performance data cold, but also knowing the limitations on its interpretation and the scaling opportunity and cost per channel going forward (think:  exhaustion of low hanging fruit).  It’s hard.

There are zillions possible combinations.  There is no one right answer.  No report will ever tell you or John Wanamaker which half of the marketing budget is wasted.  Attribution throws a drowning victim an anvil, not a buoy; the best we can likely do is to make attribution suck less.

Believe it or not, I’m actually a big believer in crowdsourcing certain aspects of marketing – but not the plan.  The plan needs to be made by someone who understands the market and who is immersed in the data of the business.  If you don’t trust your marketing head to make the plan, you need a new marketing head.  Period.

When it comes to crowdsourcing and marketing, I believe there’s a time and a place for it.

  • It is extremely effective for review. Share a draft logo and you might learn it’s too close to an indirect competitor’s.  Share a draft name to learn it’s a bad word in another language.  Share a draft webpage to find errors.   Share a draft white paper to get your arguments torn apart.   Many marketers (and most agencies) are afraid of this because such feedback can interrupt your timeline.  But it can also help you catch mistakes, before they go live.  The great thing about marketing is that everyone is going to get a chance to review your work anyway.  You may as well find problems before the launch, not after.  Don’t be an unveiler.
  • It’s great for brainstorming. It’s great to sit down with a bunch of sellers and say, “tell me what would make your lives easier.”  Or, “I noticed we’re having troubles with our demo-to-close rate, what can we do to help improve that?”  Be ready for the usual answers and bring data to address them – e.g., “no one’s ever heard of us.”  Whip out your recent awareness study to present the actual state of relative awareness and then describe your plan to address it.  Some marketers develop a fear of ideas because they see each new idea as work.  Don’t be that person.  Love ideas.  Get as many as you can and then pick the best ones.
  • It’s great for guerilla marketing. We’ve got no more budget, but we still have a problem.  What can we do, on the cheap, to help solve it?  This often comes up in the context of field and/or regional marketing.  It’s arguably a form of brainstorming, but not the kind where you are at the start of an exercise, generating ideas.  Here, you’re in the middle of it, things aren’t going according to plan, and people need help.  What we can we do (given our constraints)?  The best marketers will go sixty minutes after the official end of the day, wringing brains, asking:  any more ideas, anything else anyone can think of?   Sometimes you get the best ideas on the third wring.

In this post, I’ve tried to convince CEOs to not turn their marketing into a bake sale.  If you’re a CMO and you feel like your CEO or CRO is trying to do just that, then you need sit down and have a talk.  You are a professional, you’re immersed in the data, and you understand the business.  Ask them to work with you to make a plan, explain in detail why you’re proposing what you’re proposing, and listen carefully to their ideas and concerns.

Then, as depression-era Grandpa Kellogg would say, “plan your work, and work your plan.”

If everyone else nevertheless insists on a bake sale, you probably have a bigger problem.

Official Video of my SaaStr Europa Presentation

Just a quick post to highlight that SaaStr has posted the official video of my SaaStr Europa 2022 presentation entitled, The Top 5 Scale-Up Mistakes, that I gave in Barcelona in June.  They also published a blog on the session and packaged it into a podcast episode.

The video includes a 30-minute delivery of the presentation followed by a open-mike Q&A for another 30 minutes.  Note that I’ve since re-recorded the presentation into a slightly more relaxed 45-minute delivery that is posted on the Balderton Build site.

So, if you want the live version with Q&A, watch this.  If you want the studio version, here it is on the Balderton site.

Thanks to everyone who attended and thanks to SaaStr for having me.

Everything You Need to Know About the CRO and CMO Working Relationship: In One Story

I had a chat with a CMO a while back.

DK:  How’s the relationship with your CRO going?
CMO: Solid. We collaborate really well.
DK: I’ve heard you’ve had some trouble hitting sales targets.
CMO: Yes, well you know the targets are pretty aggressive and we just had some major turnover in the sales force. But that’s all settled now. The new CRO joined 6 months ago and things are pretty stable now.  
DK: So when you say you’re collaborating does that just mean you’re working together without incident or are you deeply collaborating — e.g., joined at the hip?  
CMO: Deeply collaborating.  We’re not just going through the motions.  We talk about the hard problems.  We answer each other’s calls on the first ring.  The CRO always tells me that we have each other’s backs.
DK:  So what are those problems?  By the way, the CEO told me they think it’s a top-of-funnel issue.
CMO: Well, yes, it’s certainly part top-of-funnel, but our close rates are pretty grim as well.
DK: How grim?
CMO: We close about 5% of our opportunities.
DK: You close 5% of your sales-accepted opportunities? 
CMO: Well, we’re actually closing 5% of our post-demo opportunities. That’s stage 4. The CRO thinks it makes more sense to calculate the close rate from the demo stage [1].  
DK: I see.  What else?
CMO:  The slip rate is bad, more than half of deals slip out of the quarter.  No-decision is our top loss reason code in the CRM.
DK: Sounds to me like a pretty standard emerging space problem.  Everyone’s trying to figure out the market. Nobody has budget in the category. People aren’t sure what it is. But a lot of people are interested.
CMO:  Yes, a lot of tire kickers.
DK:  Are any of your direct competitors crushing it or are you all dealing with the same issues?
CMO:  As far as I can tell, we’re all largely in the same boat.
DK:  So is this a top-of-funnel problem or is it broader?  
CMO:  It’s broader.  Both the CRO and I agree that we have two problems:  we are not closing enough of the pipeline we have and we need more pipeline.  Because of the second problem, we’ve raised our pipeline coverage goals to 4x.  Originally the CRO wanted 5x but I negotiated it down.
DK:  What’s the budget situation?
CMO:  Well, in order to improve efficiency in CAC ratio, we’re holding the marketing budget basically flat over last year.  The sales budget is going up 50%, though, in order to pay for those hires needed for growth.
DK:  I see.
DK:  Last question, who spends more time with the CEO, you or the CRO?
CMO:  Oh the CRO does. They spend a lot of time together, working on board slides, financing decks, and operating models and such.  The CEO leaves me pretty empowered to run marketing.

There’s Something Happening Here.  What It Is, Is Actually Clear.
Paraphrasing Buffalo Springfield, there’s a ton in this all-too-common scenario to chew on [2].  Before addressing the key point of this post — about the CMO/CRO relationship — let’s take a quick minute to discuss the business situation, because I’m guessing that Kellblog readers can’t wait to tackle that first.

My Take on the Situation
Given that conversation, here’s what I think about the business.

  • It’s in a new space and they haven’t figured out the model yet.
  • Everyone in the space seems to have the same challenges — lots of interest, but few deals, nobody has budget, lots of slipped deals, and few purchase decisions.
  • Strategically the space appears to be more vitamin than pain-killer.  They need to get better at giving people a compelling reason to buy and helping them find budget to do so.
  • They likely need to segment the space better, to try and find a subsegment where the pain is high enough to do something now and where the company can build out a whole product (aka, cross the chasm).
  • They need to be very aware of premature scaling.  While the financing model may say to hire 12 reps this year, the empirical indicators do not.  See my SaaStr Europa talk on this topic.

That’s it, in my opinion.  No more, no less.  Like any Silicon Valley startup with top investors, the company [3] likely has a founder who knows the space, a qualified management team [4], and has built a product that delivers against the initial vision.

The reality is that once in a while you land in the exact right place at the exact right time and everything takes off.  Pretty often, however, you don’t.  It doesn’t mean your vision is wrong or your product doesn’t work or your team sucks.  You just need to debug your model, refine your focus, and give yourself some time.

If the CEO has hired a strong CRO and a strong CMO, the worst thing they can do at this point is start a blame game.  What you want is a Three Musketeers  team with an all for one and one for all spirit.  The CEO, CRO, and CMO all working together to solve the company’s fairly obvious if also fairly challenging problems.

What you don’t want is a simplistic explanation and a circular firing squad that results in one, two, or even all three of those musketeers getting shot while the company struggles.  That’s what is likely happening in our scenario, and because it’s somewhat subtle, let me spell it out.

The Blame Game
The first rule of being a CMO:  if you look up and see this, you’re under the bus.

The view from under the bus

The CMO is squarely under the bus here.  How do I know?

  • “It’s a top-of-funnel problem.”  If the CEO thinks it’s a top-of-funnel problem, that is definitionally a marketing problem because marketing typically has the most top-of-funnel responsibility.  There are fifty things going on, but when we net it all out:  it’s a top-of-funnel problem.  Hum.  I bet the board thinks it’s a top-of-funnel problem, too.
  • The CRO has likely shaped that perception.  Remember when I asked who spent more time with the CEO?  That’s because it’s usually a great proxy for who more shapes their opinions and worldview [5].
  • The deal conversion rate is quite low and somehow that’s not included in the reduced problem statement.  A typical close rate in enterprise software is 15% to 25%.  This sales team is closing 5%.   The company may be light on top-of-funnel, but it can’t close deals either.  Yet somehow, the second problem gets eliminated from the reduced form [6].
  • The conversion rate is off the wrong stage.  This is a real tell-tale.  Sales doesn’t even want to calculate the close rate off stage 2 opportunities, where stage 2 is usually defined as sales-accepted opportunity.  There must be a handoff point from marketing to sales where an opportunity is accepted or not and, after acceptance, sales takes responsibility for a close rate.  By the way, closing 15% to 25% of them means you can not close 75% to 85%, so it’s not exactly a high bar.  I increasingly see companies push the close rate calculation further into the sales cycle (e.g., demo to close) which has the effect of pushing more responsibility onto marketing [7].
  • They increased the pipeline coverage target to 4.0x.  This  further transfers the problem to marketing.  First, note that the CRO tried to increase the target to 5.0x and only “dropped” it to 4.0x after negotiation.  How kind.  The effect of this is to further say, it’s a marketing problem; we don’t have enough pipeline.  To do a reductio, I once worked with a company that had 100x pipeline coverage.  Guess what?  They still missed their number.  Because there was zero accountability around pipeline.
  • The CRO never signed up to increase the close rate.  The company seemed quick to increase marketing’s pipeline generation targets, but never got around to setting a goal to increase the 5% close rate.  Hum.
  • Bookings capacity is not part of the conversation.  Sales turnover means ramp resets means ramped-rep-equivalents is potentially a lot lower than total reps.  How much of this problem is due to turnover-driven sales booking capacity shortfalls?  Nobody seems to be asking.
  • The CMO is getting ratioed, but not in the social media sense.   By default, the sales and marketing budget should scale together so the ratio between them should stay constant.  Unless, of course, there’s some bottom-up reason for why the ratio changing, why we think it’s possible to feed 50% more sales on flat marketing, and why potentially 100% of the CAC efficiencies are being demanded of marketing.  Here, the sales/marketing expense ratio is increasing 50%, without much of a reason except that “sales needs it.”
  • The CRO does not have the CMO’s back.  Real partners in problem-solving don’t let the boss think it’s the other person’s fault, let alone lead them to that conclusion.  Especially when they seem to actually know otherwise.

What To Do Instead
While I’ve touched on it above, solving the company’s strategy problem is worth a book if not a full post, so here I’ll focus on the CMO/CRO relationship.

  • Real collaboration is hard.  You need to drop the us vs. them relationship and truly work together to solve problems.
  • For the CEO, it means creating a safe space where the CRO and CMO can do that.  Think:  “Look, I think you’re both great.  We’re just working on some hard problems.  Let’s work together to solve them.”  Don’t point fingers.  Don’t encourage finger pointing.  Don’t tolerate it, whether blatant or subtle.
  • If the CEO has hired well in the first place, the odds are not great that a replacement will do any better.  Make it about success and teamwork, not accountability in the form of termination.  (Exception:  if you didn’t hire well in the first place, go fix that problem.)
  • For the CRO and CMO, it means admitting weakness to each other.  Yes, we generated less opportunities than plan.  Yes, the 5% close rate is unacceptable.
  • It means doing what you can do to help, regardless of who’d be blamed if you fail.  Think:  CMO — what can I do to help that close rate?  Sales training?  Tools?  ROI calculator?  What?  Think:  CRO — how can my team help us hit the opportunity generation goal?
  • It means holding each other accountable.  This is really hard.  Think:  I’ve been listening to discovery calls on Gong and we need to train our AEs to do better discovery.  Or, we need to cut AEs 1 and 4.  Or think:  I attended our webinar demo last and the presentation started late and failed to demo the admin side of the product.
  • It means going to the CEO with a single message.  We’ve been working on this together, we think the root cause is we are early days in the market, we are going to focus marketing on generating opportunities in these specific areas, we are going to focus sales on pipeline discipline, we are going to track MQL-to-S2 and S2-to-close as our key conversion rates, and we are working together on sales hiring profiles and onboarding training to ensure we can better close what we get.

This doesn’t always work.  Sometimes the company is just in a rough position in the market.  However, sometimes it does.  And when it does, it skips an entire executive replacement cycle, allowing the company to answer its key questions faster, and gain important time-to-market advantages, not to mention avoiding costs related to momentum and morale.

All for one and one for all.  It works.  Try it!

# # #

Notes
This post evolved from a Twitter thread I posted.  Thanks to everyone who participated.

[1]  Sorry, demo is not a sales cycle stage!

[2]  Perhaps the better lyric to borrow is:  “there’s battle lines being drawn, nobody’s right when everybody’s wrong.”

[3]  As with any Kellblog post, all examples are derived from reality but ultimately not any one company, but a hybrid of scores of companies and situations I’ve seen over three decades in enterprise software.  Everyone always seems to think it’s about them!

[4]  As I have actually said to VCs who took no comfort in the statement:  “it’s improbable that our off-plan performance is due to our own incompetence;  we are all hiring the same SDRs, reps, and managers, all from the same hiring pool, giving them roughly eqwuivalent marketing support hired from the same marketing pool, and paying them on the same compensation plans.”  Standardization of the model and labor pool serve as risk isolators in Silicon Valley.  VCs know that, which is why in general they prefer hiring veterans to up-and-comers.  They still hated the statement and I wouldn’t recommend saying it, even if you might think it once in a while.

[5]  You might argue that I’m a partisan former CMO contriving an example against sales, but remember I was also CEO of two startups for over a decade.  More importantly, as a consultant / director / advisor, all I want to do is solve the problem.  That perch makes it easier to see what’s actually happening.  I don’t care whose to blame.  If I met someone I think is incompetent I’ll say so.  If I think it’s a bunch of good people in a tough situation, I’ll say that, too.

[6]  Some would instantly blame this weak conversion rate on marketing:  “see, the 5% conversion rate proves the pipeline is junk.”  Marketing could fire back:  “but sales accepted these opportunities, that means definitionally they were qualified, and sales couldn’t close them.”  In my balanced view, I’m not assigning blame to anyone.  I’m simply saying the company has two problems:  light pipeline coverage and a weak conversion rate.   Saying there’s only one is what’s partisan.

[7]  To be clear, this means that marketing is not just responsible for creating sales-accepted opportunities, but for ensuring they reach the demo stage (typically two stages later).  Sales then become responsible for closing say 20% of those, instead of 20% of stage 2s, which have been subjected to two additional layers of filtering.  The lowers the bar for sales and raises it for marketing.  Most important, it renders effectively meaningless the notion of sales-accepted opportunity.

 

Practical Thoughts on Branding for Software Startups

Who are we?  What does our brand stand for?  What promise does our brand make?  These are some of the questions that quickly come up when thinking about branding.

In general, I think branding is a potential marketing rathole for startups, particularly early-stage ones.  See my post entitled, If Rebranding’s The Answer What Was The Question?

Do want to build a brand?  Go sell some software.  Want to improve your brand perception?  Go sell some software.  Want to have a distinctive brand visual territory?  Go sell some software.  You see the pattern.

Some startups put the cart in front of the horse.  Don’t do that.  Found a company.  Create a product.  Get product-market fit (PMF), i.e., determine some problem you solve for some person with some product.

You don’t need a brand before you have PMF.  Go get PMF.  Go sell some software to prove there’s a market.  Then you can start thinking about branding.  Then people start to wonder about some of those brand-y questions, like who are you and what do you stand for?

In this post, I’ll use a six-point branding framework and share my thoughts on how each element applies (or doesn’t) to startups. After that, I’ll discuss some important brand concepts that don’t explicitly fit in the framwork.

Our framework contains the following elements, which I’ve re-ordered according to their importance to startups:

  • Brand targeting
  • Brand promise
  • Brand positioning
  • Brand identity
  • Brand values
  • Brand voice

Let’s share some quick thoughts on each.

Brand Targeting (Who Do We Sell To?)
This is brandspeak for figuring out who you’re selling to.  Back when I went to b-school, they taught the acronym STP (segment, target, position), which I’ve always liked both for its simplicity and its explicit order:

  • Figure out a mechanism to segment the market — e.g., by company size, by vertical industry, by adjacent systems
  • Target one or more of those segments.  For startups, fewer is better.
  • Position your product to those target segments.

As I’ve always said, the first step in building any presentation is to think about the audience.  If we don’t know who we’re selling to, we don’t know what to say.  For startups, determing the target is an important part of PMF (the person part of person/problem/product), so figuring it out will require some degree of  experimentation (aka, spaghetti throwing or emergent strategy).

Brand Promise (Why Do They Buy From Our Company?)
This is brandspeak for the high-level expression of why someone should buy from your company, often more simply known as the value proposition.  For tech startups they tend to fall into a few patterns.  (I’ll use my semi-informed perception of next-gen EPM vendors as an example.)

  • We are you.  By FP&A for FP&A (e.g., Mosaic, we built it for ourselves at Palantir).
  • We fixed it.  We took the last-generation leader and made it better (e.g., Cube to Adaptive, Pigment to Anaplan)
  • We rebuilt it.  We run on the modern stack with modern technology (e.g., OnPlan to Vena)
  • We verticalized it (e.g., Plannuh for marketing, Place for SaaS)

This is not product positioning; we cover that next.  This is a high-level, one-line statement about why to do business with your company.  Other examples:

  • Skyflow:  what if privacy had an API?
  • Hex:  a modern platform for data science
  • Cyral:  the last line of defense for data

Brand Positioning (Why Do They Buy Our Product?)
This is product positioning.  Many people start with the Geoffrey Moore positioning template, but I think that’s a bit heavy and includes things other than strictly positioning (e.g., targeting).  Ultimately, positioning comes down to answering one of two questions:

  • Why buy one?  (Benefit oriented.)
  • Why buy yours?  (Differentiation oriented.)

Startups who are alone in defining their category need to focus on the first question.  Those in crowded categories (either a new market with several nascent entrants or a more developed category with the usual suspects), the emphasis needs to be on why buy mine.

Some early-stage startups actually need to focus on both, ending up with a dreaded two-phase sales cycle:  first convince the customer to buy one, and then the customer starts a formal evaluation process where you need to convince them to buy yours.  (Try to avoid this by selling to business leaders who can pull the trigger at the end of the first cycle.)

The Brandier Part of the Framework
This is the point in the framework where we go from commonsense startup strategy (with more brand-y naming conventions) to the world of pure branding.  Spending too much energy down here, below this line, can waste valuable time and energy.  Let’s understand what these three elements mean and think about how much to invest in them.  We’ll then conclude the post by talking about some important brand concepts that didn’t explicitly make this six-part framwork.

Brand Identity (Do We Look Like Us?)
This is the world of visual identity — e.g., color palette, logo, fonts, imagery.  This answers the question:  do we look like us?  This is important, but it’s table stakes.  You’ll never win deals by having a better visual identity than another startup, but you might well lose them if you’re seen as unprofessional, cheap, or rinky-dink.  Invest enough to look good and keep up with the Joneses.  But not a penny more.

Brand Values (What Do We Stand For?)
This answers the question:  what do we stand for?  For startups, it’s largely about the company’s culture and values.  While both are often quite important for culture-building and recruiting, for customer buying decisions, well, not so much.  Make an about-us page, tell your origin story, share your mission, and list your values.  From a company-building point of view, the key thing (and the hard part) is living and reinforcing those values.  From a marketing point of view, you’re done.

Brand Voice (Do We Sound Like Us?)
This is the world of tone, and answers the question:  do we sound like us?  For consumer brands, voice matters a lot.  For tech startups, particularly those in enterprise, well, I hate to say it but everyone pretty much sounds the same.  We hire the same agencies, the same copywriters, the same product marketers as everyone else.  So this become table stakes once again:  invest enough to sound like everybody else and let what you’re saying, not how you’re saying it, be the differentiator.

Only one enterprise software company I can think of had a distinctive voice:  Splunk.  It was largely executed through clever slogans like, “finding your faults, just like your mother.”  While I’m sure their marketing team had fun with this, they did it on the side, after doing all the core marketing required to build a great business.  Don’t invert that prioritization.  The easiest way avoid problems is to put zero effort on differentiation via voice.

Other Important Brand Concepts
There are two important brand concepts that aren’t in the framework explicitly, so I want to talk about them here:  brand awarenes and brand perception.

Brand awareness (“What percent have heard of us?”)
Every CMO who has ever heard, “we’re the best-kept secret in the market” from their salesforce or, “you’re a hidden gem,” from your customer base will feel my pain here.

Awareness comes in two basic flavors (i.e., aided, unaided) and there are only two things I know about it:

  • You can never have enough to make everyone happy.  Ever.  Someone will always have an opinion.
  • You absolutely have to measure it.  The only way to fight subjective perception is with data.  So measure it.

In tech, aided awareness is more important than unaided (which is simply a very high bar) and, since larger vendor compete in multiple categories, you must measure awareness within a category.  Don’t ask:  “have you heard of Oracle?”  Ask:  “In the context of CRM tools, have you heard of Oracle?”

In fact, if you’re measuring awareness, don’t stop there.  Ask these whole-funnel questions — about both you and your key competitors — as well:

  • Have you heard of X?
  • Do you have a positive opinion of X?
  • Have you considered buying X?
  • Have you tried X?
  • Have you purchased X?
  • Have you repurchased X?

And then compare what this outside-in research tells you compared to the conversion rates in your CRM funnel.  You might find you’re guilty of navel-gazing.

Brand perceptions (“What do they think of us?”)
In software, once brand awareness is established, three brand perceptions are critical:

  • Market leadership — are we seen as a market leader?  That is, as the safe choice in the market.  This is critical to risk-averse individual buyers and mistake-averse evaluation committees.
  • Thought leadership — are we seen as a thought leader?  A market leader who lacks thought leadership may hold a temporary position atop the market.  The safest purchase has both.  Lack of thought leadership opens attack vectors for new entrants.
  • Technology leader — are we seen as a technology leader?  Strictly speaking leadership is not required, but fast-following is.  Most buyers don’t need you to invent everything — many market leaders, from Oracle to Microsoft to Salesforce — are more fast-followers than leaders — but they do need to believe you are in-touch and evolving.  Tech laggards (e.g., SAP) become targets for replacement.

For more of my thoughts on branding, see my posts on Branded Features, If Branding’s the Answer what was the Question, and The Market Leader Play.

Branding’s fun.  If want to work full time on it, go to a top agency.  If you want it to be a big part of your marketing, work in consumer products as a brand manager.  In tech, well, learn about branding from the best, and then apply it delicately and where needed.

The Top 5 Mistakes European Startups Make in US Expansion

This is a cross-post to Kellblog of the first post in a six-part series that I wrote for Balderton Capital as part of my work there.  The first two posts are already up on Balderton’s Build website, while the remaining four will be rolling out at the rate of about once/week over the next four weeks.

This series was both a lot of work and a lot of fun.  I was able to leverage many of my Balderton colleages (e.g., Bernard, Suranga, Alice, Rob) as well as my other European startup colleagues (e.g., Chris, Eric, James, Fred, Andrew) while drawing on my nine years at Business Objects, five years on the board of Nuxeo, and two years on the board of Scoro, as well as many advisory gigs both within the Balderton portfolio and outside.  Thanks to everyone who helped me as I worked on this series.

Here’s the lead post.  (I am only putting the lead post on Kellblog, and leaving the rest to Balderton.)

International expansion is hard. Expanding internationally means managing differences not only in language and time zone – but in culture, business norms, law, taxation, labor, employment, compensation, and competition. It’s no small undertaking and it’s not for the faint of heart.

But it is nevertheless, absolutely essential. To create a worldwide leader you must, almost definitionally, execute a successful US expansion as part of the process. The US has a massive total available market (TAM), which accounts for between 40% and 50% of worldwide technology spending.

US thought leaders — including industry analyst powerhouses such as Gartner, Forrester, and IDC — define not only the yardstick for evaluating vendors in existing categories, but also new product categories, the trends driving their creation, the hype cycle of technologies behind that, and the “companies to watch” as categories emerge. US customers are demanding, operate at the forefront of many categories, and push their suppliers in a virtuous cycle to advance the cutting edge of functionality, performance, and useability.

Much as Paris is a bellwether for the future of fashion, the US market is a bellwether for technology. And every week is fashion week. To adapt the ancient proverb, it is no longer that, “all roads lead to Rome,” but, when it comes to building a worldwide technology leader, “all roads lead through the US.”

What’s troubling is that if international expansion is hard, US expansion is harder. The US poses numerous, often unique, challenges for a European technology startup.

The market is vast

The US market is vast both in terms of TAM and geography. Segmentation strategies are critical. So is developing a geographic strategy. I often quip that if Geoffrey Moore were English, he might not have needed to Cross the Chasm by intersecting vertical beachheads with geographic industry clusters.

The market is highly competitive

The US market is highly competitive, a statement that is often misunderstood to be about the temperament of US salespeople (who, by the way, generally are), when it’s really just a fact about the number of competitors. Startups typically face more competitors in the US because you have both “the usual suspects” in your home market plus the frequently US-based, next-generation disruptors who have yet to expand to your home country in Europe.

Different buying criteria

US customers tend to buy less on perceived product superiority and on a mix of product and vendor attributes. Ultimately, for most US customers, picking the “best” product isn’t about selecting the product with the best technology, but about picking a vendor who they perceive as safe and who holistically offers the best solution to their problem. That’s easy to say, it’s much harder to internalize.

Industry analysts matter more

While European buyers seem somewhat more independent in their decision-making, US buyers – particularly Fortune 1000 IT departments – routinely rely on advice from an ecosystem of thought leaders and influencers, ranging from major industry analyst firms (e.g., Gartner, Forrester, IDC) to boutique analyst groups specialized by technology or industry (e.g., Dresner Advisory, Outsell) to independent consultants promoting books and methodologies (e.g., Bob Seiner and Non-Invasive Data Governance). Knowing how to work with them can become critical.

Lack of home field advantage

Just as sports teams have an advantage when competing in their home stadium, European startups often have a (sometimes unacknowledged) home country advantage when competing in their home market. Expanding to the US isn’t just Manchester United playing in Stamford Bridge. It’s worse. It’s playing in a stadium on another planet before an audience exclusively composed of opposing fans who neither have heard of your team nor have the ability to locate your home country on a world map.

Unusable customer references

Relevant customer references are a key part of any technology buying process. So you may think you’re in great shape when you arrive in the US with a fantastic set of hard-won enterprise references like Carrefour, Enel, La Poste, RioTinto, StatOil, Tesco, or Total. You quickly learn that those references get you more blank stares than nods. Think: “so who that I might have heard of is using your software?”

Labor market misunderstandings

You will likely face a bidirectional set of misunderstandings with the American labor market. You probably won’t understand the labor market – for example, when it comes to cash compensation, equity expectations, or the interpretation of American resumes. And the labor market probably won’t understand you – for example, when it comes to the basic concept of working at foreign subsidiary of a technology company. I’ve seen US marketing heads incorrectly think they were responsible for global product launches and I’ve seen European technology startups offer US sales candidates options on 10 shares at €2,950 each. Both situations end badly.

Unforced errors

Sometimes, the challenges combine to provoke unforced errors, ultimately, I believe, because of intimidation. The idea of US expansion can be so daunting that sometimes founders conclude basically illogical things like, “we can’t possibly do [something that works for us in Europe] because it’s the US and [manufactured reasons] apply.” So rather than putting their best foot forward in their US market expansion, they launch into one of the toughest markets in the world on their back foot.

A six-post series

This is the first in a six-post series that discusses what I see as the top five mistakes European startups make in approaching USA expansion. While I will write in the first person to reflect that the content is ultimately my opinion, those opinions have been informed not only by my own experience working with and at European startups for the past 25 years, but also by the collective experience of the Balderton team, who have worked with scores of European startups on US expansion.

This work builds upon the ideas of Rob Moffat in his Internationalization Playbook which focuses on when, where, and how to do so, along with a case study and comparison data. Rob also discusses when things go awry, going into depth on some frequently-encountered problems, so in some ways you can consider this series a more recent take on that topic, and one done from the point of view of a different author.

As we discuss the top five mistakes, I hope to not only describe the mistakes and explain why I believe they happen, but also outline the steps you can take, as a European technology startup founder or executive, to avoid them.

TOP FIVE MISTAKES

With that introduction, I believe the top five mistakes European technology startups make in US expansion are:

1. Delaying US expansion

Expanding to the USA is scary, so you delay it and delay it again. You establish artificial thresholds and re-establish them – “we need to be $5M in ARR,” followed by, “no, we need to be $10M,” followed by, “no, we need to be $20M.” Instead of embracing US expansion early, you delay in the name of critical mass or incremental cost. No matter the logic, threadbare or not, the result is the same. The company starts too late, potentially lets US competitors or copycats get established, and now faces an even more difficult expansion in the US.

2. Failing to adapt structure and process as you expand into the US

This might sound esoteric, but it’s not. Many European startups try to add the US as “just another country” without making changes to their core structure or processes. While there are several different models for building a global technology leader with a strong US presence, virtually none of them treat the US as just another country. The mistake is thinking that expanding into the USA will not change you – e.g., how you do things, how you are structured. It will. To be successful, it has to. The question needs to be, “how do we want to change?” and not, “do we need to?”

3. Hiring the wrong people

As alluded earlier, hiring is a veritable minefield and the list of possible mistakes is long. To offer a few popular examples: hiring weak people because you get confused by embellished US resumes, hiring on-the-cheap and building a team of minor-league (i.e., division II) players, or hiring big roles (e.g., general manager) prematurely and filling them with junior people. Overall, these mistakes fall into several broad buckets that we will identify and help you avoid.

4. Underestimating the importance of sales and marketing (S&M)

It’s one thing to say, “the best product doesn’t always win.” It’s another thing to internalize it. It’s yet another to take some perverse pride in it, as many Americans do. Many European founders – often despite saying the right things – fail to both understand and believe in the importance of S&M and still, buried beneath a layer of platitudes they repeat as dogma, believe that they will win the market because they have the best product. Deprogramming is difficult and too often accomplished only by losing in the market. The less painful approach is to focus on two questions that can serve as a North star to keep you on the right path: (i) who gets to define “best” and (ii) how do they define it?

5. Looking and sounding too European

Unless you’re selling cars, wines, or fashion, most Americans will not hear the word “European” as a positive addition to your company’s list of self-describing adjectives. US buyers tend to hear “risky” when you say “European” in the context of technology. While you might think saying “French” is an implicit boast about your company’s amazing engineers, the American buyer will wonder about technical support hours, language fluency of support staff, and the availability of resources in the local ecosystem. Showing up on a sales call with four employees all named Jean-something, having the lead presenter speak with a thick French accent, and showing product screens where bits of French appear in the UI and demo data, will only exacerbate their fears. While successful companies do not necessarily conceal their European origins, nor do they needlessly highlight them.

In the rest of this series, we will cover one mistake per post, diving into more detail on the nature of each mistake and the steps that you can take to avoid making it.  Thank you for reading this introduction and welcome to the series.

You can continue reading the series with the second post, here.