By Steve McKee
Entrepreneurs often dismiss marketing as an uncessary luxury for their start ups. They couldn’t be more wrong.
Is aggressively marketing your startup company a requirement or a luxury? While many entrepreneurs pay lip service to the former, they don’t really believe it. If you want the truth, look at what they actually do.
As crazy as it may seem, it’s common for entrepreneurs to overlook the need for major marketing investment from day one. “We’re just starting up,” they think. “We need to get on our feet and then we’ll have the money to invest in things like marketing and advertising.”
But whether it’s old-fashioned meatloaf or brand new technology, no matter how good your product or service is, it won’t sell itself. If you can’t afford a marketing budget you can’t afford to open your doors.
A few years ago my firm surveyed over 100 growth company founders from across the nation. Among the things we wanted to know was how they determined how much to spend on marketing.
To our surprise, nearly half said they had no formal budget or followed the scattershot “zero-based” or “all we can afford” approaches. It’s no wonder so many small businesses never make it beyond their startup years. Without a marketing formula tied to concrete measures, they’re asking to fail.
PERCENTAGE GAME. Marketing is like any investment. The more dollars you invest, and the more steadily you invest them, the bigger their value will grow over time. Invest nothing and you’ll get nothing.
Of the companies we studied that did have a marketing budget, most followed the percent-of-sales approach, devoting some percentage of their revenue to the marketing function. The amount they spent ranged from 1% on the low end to 12% or more on the high end.
What percent should your business spend? There’s no magic number, but there are rules of thumb. The first is to determine whether your company will be margin-driven or volume-driven. Volume-driven businesses like supermarkets and hospitals spend a very small percentage of sales on marketing because their sales are high and margins low.
It doesn’t take much for them to generate a large chunk of change, and they can’t afford to spend more than 1% or 2% on marketing. By contrast, margin-driven companies like those in high tech and specialty retail have a smaller revenue base but more flexibility to build a higher percentage into their margins. Published norms can be found for most industries.
DESIGN TIME. Determining your marketing budget based on a percent-of-sales approach is difficult in the startup phase since there is no revenue history on which to base it. You may want to establish a flat budget that will carry you through your first 6 to 12 months, or you may choose to tie your budget to a projected sales goal. Keep in mind that it takes more fuel to get a train up to speed than it does to keep it running down the track.
Once your budget is determined, the question changes from how much to spend to how best to spend it. Whatever tactics you choose, make sure the first thing you do is commission a professionally designed logo and letterhead package.
Now don’t roll your eyes. Chances are good that you know somebody who has a knack for desktop publishing (well-intentioned brothers-in-law are often more than willing to pitch in). You may even have a great idea for a logo yourself.
Perhaps you sketched it on a napkin as you were dreaming about going into business. “Why,” you may be thinking, “should I pay a bunch of money for a logo when there are so many other things my company needs?” The answer is simple: because you don’t know what you don’t know.
CALLING CARD. There’s a reason entrepreneurs hire attorneys to write their contracts and architects to design their buildings. The benefits of hiring a professional far outweigh the cost savings of doing it yourself.
Your logo is your company’s calling card. It’s the first thing every prospective customer is going to notice about you. It has to work in large formats and small, in color and in black-and-white, in ads and brochures and proposals.
Do you want people to think of your company as professional or amateur? Fly-by-night or here to stay? Attractive or tasteless? Your logo will communicate on all these levels, for better or for worse. A logo that offends your prospects’ aesthetic sensibilities can become an insurmountable obstacle.
Here’s a helpful hint. Call the best advertising agency or design firm in your city. Tell them about your new business. Make it clear that you know you’re too small for them today and ask them to recommend the best two or three freelance designers they know. Thank them for their time and tell them that you hope to be back when your business can afford them. They’ll be happy to help and will appreciate the compliment.
WORTH THE MONEY. Then call the designers and ask them for samples and a quote for a complete logo and letterhead package. Get a feel for their personality and bedside manner. Check out their references. Share your vision with them. And then give one of them the assignment. You may pay $2,000 or $20,000 — it depends on who they are, who you are, and how interested they are in your company (all designers want to be part of something cool).
This may be a difficult step to take, but if you don’t believe in your company enough to present it in the best possible light, why should your customers? Take the step and spend the money on a professionally designed logo. When it’s complete you’ll be proud to show it off and excited to promote it, which you can do with the balance of your marketing budget.
Whether you’re running a corporation or starting a small business, certain principles never change. Quality costs money, and marketing isn’t cheap. If your marketing budget puts your pro forma in the red, adjust your pricing and product models until it all works.
Spend money judiciously, but don’t be penny wise and pound foolish. Do things right from Day One and don’t compromise aesthetics. Years from now, when you look back on the early days, you’ll be glad you did.
By Steve McKee