A Houston expert looks at marketing from an investor’s perspective
What do investors expect from a startup when it comes to marketing the business? I recently talked about this topic to a cohort of early-stage tech startup entrepreneurs at Softeq Venture Studio, an acceleration program that helps founders build investable technologies and companies.
Here are some of the highlights of our discussion.
Building the Foundation for Marketing Efforts
It’s important for business founders to think about the big picture. When we talk to Craig Group clients, we talk about market growth and revenue growth, not just marketing. Because that’s what investors think.
Things like EBITDA margin and recurring revenue are important to investors. They prefer predictable income growth rather than uneven or project-based fluctuations. Investors also expect founders to have a plan for the scalability of their business.
Entrepreneurs need to consider how they will evolve and where they will evolve. What markets are they going to go to and what’s the plan for that — what’s the timeline?
An exit plan is also a must because even if the founder plans to stay in the business, investors are looking for return on investment with another deal after a business has successfully grown and become profitable. Founders must start with the end in mind.
A marketing strategy that appeals to investors
There are hundreds of private equity firms interested in lower-middle-market companies, defined by EBITDA between $2 million and $20 million, or earnings before interest, taxes, depreciation, and amortization. It’s competitive but there’s a lot of money to invest.
Startup founders should focus on the basics first when setting expectations for marketing investment. And they need to know who their customers are and where their ideal target audience is.
Considerations include usable available market (SOM) which is what the company thinks it can logically support today. This is distinct from the usable addressable market (SAM) and the total addressable market, which is what a company will strive to enter.
You want to know how many of these potential customers exist, and to do that, you need data. If you don’t have it, you can look at the adjacent markets. Build the cost of customer acquisition you can afford. It’s not as important where the number starts, but how it grows, as it should become more effective over time.
Marketing investment will increase revenue, target the most profitable customers, be able to reach potential customers on a larger scale and faster than sales efforts alone, and improve the perception of the business before the exit of the investor.
Key Elements of a Strategic Marketing Plan
The most expensive customer is a new customer.
In the marketing cycle, “pre-awareness” requires the biggest marketing investment. If potential customers don’t understand what a product or service is, it will cost the business to educate them on a new category, so it’s better to leave those with more resources than a middle-market startup. .
A more cost-effective way to reach customers is during the search or comparison portion of the marketing cycle. You can demonstrate what differentiates you from your competitors. Do you sell at price? Do you sell on service? Think of a side-by-side comparison.
Once the buyer has reached the decision and loyalty part of the sales funnel and purchased from the company, the marketing has been effective and customer retention becomes a key goal.
In complicated B2B sales cycles, a number of people may be involved in making the decision to purchase your product or service. What is important to the IT decision maker may not be important to the potential finance or purchasing customer. You need to have compelling messages for each of them, which means your marketing needs to sound like your customer and respond directly to their needs.
Sales and Marketing 101
Many middle-market businesses don’t pay enough attention to their front door, which is a company’s website.
Your potential customer will often be on your website, but definitely 20-30 minutes before a sales meeting. And if they can’t find something compelling, they probably won’t be inclined to move forward with your product or service.
A digital strategy and content focused on both brand awareness and lead generation can contribute to the ultimate goal of profitability.
Entrepreneurs shouldn’t spend on marketing tactics until they have a solid strategy, but once they start investing in advertising or other marketing tactics, they should be able to get metrics and a return on investment on their campaigns with their marketing partners.
It is important to focus on effective revenue growth as the business grows and evolves. Digital marketing is an important part of the overall growth plan and should not be overlooked. The countdown begins to increase profitability once a business owner has partnered with investors. Make sure your business has an effective plan to achieve set goals.
Libby Covington is a partner at Houston-based The Craig Group, a strategic digital marketing solutions consultancy. His specialty is understanding how sales and marketing work together effectively.