A comment I received on my recent article on measuring the benefits of social media got me thinking.  If I can’t track a positive ROI from the time investment in Social Media, is it still worth doing?  After all, many of the potential benefits, such as word-of-mouth, would be so indirect they would be nearly impossible to tie back to the social media investment.  But clearly they would be valuable even if I can’t measure them.

Since much of my marketing experience has been in venture funded tech companies, I’m very cognizant of where I allocate my team’s time and financial resources.  A few bad decisions can easily cause a company to fold (most startups eventually do fail).  Luckily there is more than one path that leads to success.  Generally I try to stick to a path that consists of activities with very measurable benefits.   Of course many of these activities have additional benefits that can’t be measured, but if I can track a positive ROI then the less tangible benefits are gravy.  If an activity requires little investment risk, then gut feel is enough to keep doing it.  But if there is risk, I want to measure the results.

An investment in social media can be very time consuming.  Can we succeed without a large time investment in social media?  Absolutely.  Can social media be an important tool to help drive success?  Probably.  The only way to know for sure is to test it.  If I can measure a good return from the time investment in social media, then it will definitely be a part of our marketing mix.  If I can’t – it will have a minor role at best.

Until recently software was primarily sold through resellers and retail.  Tradeshows were essential for promoting enterprise software.  Established players had the mindshare to be contacted when someone needed their software, and new companies had a hard time breaking into existing categories.

But software marketing is changing quickly.  Retail software companies like Egghead and Software Etc are gone.  Even the software sections at CompUSA and Staples are a fraction of what they used to be.  Comdex and other key tradeshows are history.  And value added resellers are scrambling to come up with more value added services to replace their dwindling software sales.

Why? Customers are now much more empowered then they used to be.  Who needs retail or a reseller when a free software trial is only a few clicks away?  Looking for an FTP program?  Google it and you will find several free, secure, and easy programs – whatever your needs, you are only a few minutes from finding the right solution.  Not sure if you trust the brand, Google the specific brand.  Generally you will find at least one review from a reputable publication.

And it’s not only consumers and small businesses using the web to find software.  Enterprises are also empowered to research and buy solutions online.  For example, at the very early stages of my current company (only a couple years ago) one of the world’s largest technology firms began assessing our solution.  Before the sales team even had a chance to speak with someone from the company, dozens of people were deep in evaluation.  How did they find us?  Google Adwords, of course. We’ve now completed several six figure transactions with this company on a trial that cost only a few dollars to generate.

Smart software marketers are enthusiastically following their customers onto the web.  It is a perfect medium for promoting and distributing software.  The web provides much better measurement than traditional marketing mediums.  Each campaign can be tracked by the cost of generating a trial and a purchase and comparing that to the projected lifetime value of each customer.  Campaigns that don’t yield a positive return on investment can be cut, allowing the marketer to concentrate funds in the most effective marketing campaigns.  Also, VARs no longer stand in between the publisher and customer.  Since the software publisher now fully owns the customer information, they can make a much more effective investment in CRM.  And brands can be built over time through branded customer interaction rather than through risky, less accountable print and trade show investments.   Finally, since packaging and distribution costs have been eliminated, software now really does have virtually zero marginal cost.

Online marketing, particularly search marketing is great for harvesting existing demand, but creating demand for a new category of software can be a bit trickier.  I’ll cover that in a future post.  Also, the software marketing landscape continues to change with the increasing popularity of software as a service (SaaS).  This brings additional challenges, but is even more suited to the web than traditional licensed software.  Again, I’ll cover SaaS in a future article.

Today I listened to a podcast interview with Jake McGee of Big in Japan on the Marketing Monger Podcast.  His firm specializes in helping companies tap the benefits of social media such as Blogs and message boards. While he praises social media as an important loyalty builder, he claims that the ROI is not very measurable.  Since customer loyalty is a key goal (particularly in my company where we sell subscription based software) – I began thinking about how social media might be measurable.

For a company with registered users/customers, it is best to start by creating a field in the database representing each social media program.  Each time a logged in customer participates in a program (such as reading the message boards) it should be recorded in the database.  After enough data has been collected it should be clear whether there is any correlation between participating in the program and higher customer lifetime value (improved customer loyalty).  If there is a correlation, more funds should be concentrated in social media programs.  If no correlation can be identified, resources should shift to other, more direct ROI generating programs.

The majority of marketing Bloggers are on the agency or consulting side.  This is only natural.  It is part of the process of marketing their services to share their ideas and gain recognition as intelligent, practical marketers.   There isn’t really a risk of divulging too much information – nothing will be specific enough to replace the need for the agency or consultant. 

On the other hand, corporate marketing Bloggers have much less to gain from Blogging.  This is why there are so few corporate marketing Blogs.  And there is plenty to lose.  Every Blog entry carries risk.  Am I revealing company secrets?  Am I giving my competition something they can use?  Am I suggesting weakness to potential investors or business partners?  Corporate marketers must filter every word in a Blog for appropriateness.   This is hard work and slows down the process.

So why do we do it?  Well I can’t speak for every corporate marketing exec, but there are two main benefits I derive from Blogging.  The first is that it provides an opportunity to interact with other marketers and become part of a bigger marketing community.  It’s almost like open source for marketers and raises all of our games.  I read the ideas of another marketer and in tailoring a response or opinion I really need to think it through.  If I just ponder it for a moment, it is easy to fool myself into thinking I have it figured out.  But in a Blog entry I reread it and realize that it doesn’t make any sense.  I know that if I am a bit confused by my own words, any outside reader doesn’t have a chance of getting my point.  So I rewrite and rewrite until it is clear.  I’ve found this process not only helps my ability to figure out different marketing concepts, but it also improves my skills at articulating marketing concepts to my team and the rest of the company.  

The second benefit I get from Blogging is that it lets me establish an identity that extends beyond my current role.   Most marketing leaders are at a company for less than five years.  With a Blog they can build an identity and reputation that lasts an entire career.   Of course this is very self serving – but isn’t every Blog?

Passion for perfection is usually associated with a sport like golf, basketball or tennis rather than a skill like marketing.  However, it is equally important for reaching greatness in marketing.   Given the immensity of the range of potential skills and knowledge in marketing, you are always fairly low on the learning curve.  Looking up that learning curve can be both daunting and exciting.  Marketers at every level are challenged (or delusional).

Passion is a key driver of the patience and energy needed to climb the learning curve.  Marketing improvement requires theoretical study and practice.  It’s good to read books, but unless you put that knowledge into practice it will be forgotten.  Also, too much focus in one particular area of the marketing continuum often means that rust builds up in other key areas.  After completing a marketing book, it’s good to integrate some elements into your overall marketing approach, but try to retain the balance of activities that have been effective in the past.

Regardless of the passion you bring, you’ll never come close to mastering marketing.  Sure, different parts of your approach will improve, but as soon as you think you have everything figured out – you choke.

We’ve all faced the challenges of trying to break through the flood of advertisements that overwhelm our prospective customers. Over the years many marketing approaches have emerged to address this challenge.  Two of the most notable are “relationship marketing” and “permission marketing”.  Both approaches advocate trying to retain someone’s attention once you have paid to get it in the first place. This can be achieved by building a trusted relationship and selling products over time.

One of the best ways to accomplish a trusted relationship is by offering a very valuable, completely free product or service.  This gives you an ongoing opportunity to patiently introduce the benefits of your premium products. I call this approach free-to-premium marketing.  It is important to understand that these products must be completely free and valuable, not just free trials or “crippleware”.

Once traction has been established with free-to-premium marketing, it can also be very effective for attracting new users via word-of-mouth.  People love to talk about valuable free products, and this not only applies to consumers.  Business buyers also enjoy being “in the know” about free alternatives and sharing this information with their peers.

Many successful businesses have been built using the free-to-premium model.   One of the most noteworthy is Efax.  Efax has attracted over 9 million registered users by offering a completely free fax number that delivers faxes to your email.  Many Efax users upgrade to the premium version, which lets you choose the area code for your fax number.  Efax likely contributes a significant portion of its parent’s (J2 Communications) $1 billion market cap.

Other successful free-to-premium products include AVG and Zone Alarms.  Both products entered highly competitive markets (anti-virus and firewall) and became significant players in their respective categories.  In 2004 I also introduced this model at my company.  Since then we have attracted millions of users – with upgrades driving sales across several product lines.

Not all products and services are ideal for the free-to-premium model.  Even within the same category, one provider might be able to execute the model while it is impossible for another.  For example, one of my competitors, Webex, tried to replicate our free-to-premium model, but eventually discontinued it.  There are several confidential reasons why we had an advantage offering a free version.

In order to be successful, free products or services must have a low marginal cost and very efficient marketing.  While word-of-mouth will likely become a strong driver, a company must first gain initial market traction.  This generally requires both a large marketing investment and near flawless marketing execution.   Acquisition costs must remain low since a large portion of the free users will never generate any revenue.  Once free users have been acquired, you must continuously work the funnel to improve upgrade rates.  Finally, there is downselling pressure for anyone that discovers the premium product first or upgrades and then decides that the free version was enough.

Still, with the right product and marketing execution, a free-to-premium model can be a powerful growth driver.

Seth Godin wrote an interesting piece on the tradeoff between intuition and analysis.  While it was insightful, I view things slightly differently.  I don’t think there is a tradeoff between intuition and analysis as he claims.  I think intuition drives the ideas that should be implemented and then after implementation the results must be analyzed.  Prioritizing the order in which ideas are implemented requires an additional level of intuition or gut instinct.  However, careful analysis of the results will provide guidance whether an idea should be killed or if it should be further developed and financed.

When I discover people on my marketing team debating an idea I always step in and just say “test it”.  Subjective differences are very hard to overcome via debate and debate over ideas is often a waste of time. However, once we prototype an idea, test it and have some hard data it is much easier to agree on a future course of action.  One of my key marketing team members is a data analyst who previously worked as an actuary, so he is very helpful in evaluating the data.

In my previous post I wrote about my journey from wanna-be CEO to serial marketing entrepreneur.  This got me thinking – how much risk is there living on the perpetual startup merry-go-round?

We’ve all heard the statistics.  Most startups fail.  It is hard to find official VC success rates (most VCs don’t disclose financial results) but anecdotally I’ve heard that less than one in ten investments hits big and most result in investment losses. Even with these low success rates, many VCs generate excellent overall returns.

As individual team members we don’t have the luxury to make a portfolio investment of our time across multiple startups (at least not without significantly diluting our efforts).  I’ve averaged about 5 years in each of my two startup experiences.  I consider myself extremely lucky to be 2 for 2 in joining pre-funded companies that hit big.  The typical stats would suggest I would hit big one in ten times.  Those odds aren’t very appealing, especially when you consider the other risks and costs of a startup.

According to Salary.com, a Marketing VP in the Boston area should earn a median income of $219,000/year. However, marketing VPs at most venture funded startups are lucky to earn $150,000/year.  So right out of the gates, a startup marketing exec is likely giving up more than 30% in salary.  Then consider that there is a lot less job security with little if any severance if things don’t work out.  Also you’re fortunate if you can get fully paid health insurance, 401 K contributions, etc.

Still, startups attract great talent.  Why?  Well for one thing, there is a lot of upside with the rare successful exit.  But successful startups also offer employees at all levels a better opportunity for fast career growth.  Most run as a meritocracy – generally larger companies have internal political pressure to offer somewhat equitable structured career paths and salary increase caps.  Startups have to reward the stars or risk losing them.  Without star employees, they are sure to fail.

So considering the risks and rewards of startup life, is it wise to base a career on startup hopping?  For some, yes.  Success generally requires a combination of luck, skill, self confidence, perseverance and careful assessment of each opportunity.  A comfortable, secure lifestyle requires all of these to mesh within the first couple of opportunities.   Otherwise, you could easily be on the startup treadmill for your entire life – working hard and providing little long-term financial security for your family.

In future posts I will explore some key ways to increase the likelihood of success for startup hoppers.  I’ll also discuss the profile of people with a decent chance of success and those who should avoid a life in startups.