Iterating Without Understanding?

It seems there are two camps of “evolved” marketers these days. One group recognizes that it is critical to understand customer needs by engaging them at every opportunity. The other group is completely focused on metrics driven iteration. Until recently, few combined these powerful forces.

I started in the camp of online metrics and scorned the beanbag marketers who didn’t “get” analytics. At Uproar in the mid to late 90s, metrics were our competitive advantage. We tested, measured and optimized everything. We knew we couldn’t afford any waste if we were going to have a chance to beat the heavily funded Silicon Valley gaming startups and the established companies getting into online games (Microsoft, Yahoo, Sony). Ultimately, this obsession with leveraging metrics to track ROI and improve conversion through iteration was key to becoming the worldwide leader in online games and peaking at a billion dollar stock market valuation. Despite their much deeper cash war chests, the beanbag marketers couldn’t compete with our no waste metrics driven approach.

Today the Darwinian economy has killed off most web businesses that don’t leverage metrics, so this is no longer a competitive advantage – it’s a necessity. But many web marketers stop there.

In my next startup I was fortunate enough to have a venture capitalist who helped take our approach to the next level. We attracted his investment with our metrics driven online marketing approach and then he quickly improved it. He constantly grilled me with the question “Who is your customer?” During our weekly meetings he never failed to ask about the last time I spoke to a customer. I got extra brownie points for meeting with customers in person. To be honest I initially focused on engaging customers just to appease this VC. But it didn’t take long until I was able to use this information to improve results. Informed iteration helped us increase purchase transaction rates 10X in just a few months, which made scaling a profitable marketing spend infinitely easier. Later customer engagements uncovered revenue opportunities we never could have found through metrics driven iteration. These revenue opportunities eventually accounted for more than half of the company’s overall revenue volume – making possible the eventual IPO filing.

It wasn’t until I began the Interim VP Marketing role at Xobni that I discovered Steve Blank’s The Four Steps to the Epiphany. This book added a systematic process for uncovering the critical information needed to build a thriving business and keep improving results.  The great news is that Steve Blank recently started blogging at Perhaps even better news is that Venture Hacks now records Steve Blank’s lectures at UC Berkeley and posts them online.

The same Darwinian forces that made metrics a necessity for online marketers are once again shaking up the web startup world. It has become a major competitive advantage to combine Steve Blank’s customer development approach with informed metrics driven iteration. And it’s only a matter of time until this approach becomes a necessity for survival.

So what’s next? I’m certain that eventually a platform will emerge that ties it all together. This platform will facilitate the process of collecting and analyzing actionable customer information and manage the iterations that deliver optimal results. Up to this point we’ve always had to custom develop these tracking and reporting systems, while using disconnected systems to drive understanding (surveys, Excel…). Off-the-shelf analytics programs have been bloated with data that is useless for improving results.

Rather than holding my breath for someone to deliver this dream platform, I’ve been advising KISSmetrics as they work to create it. I’ve given them total visibility into my approach and turned over reports that have evolved over many years of execution. Of course they have given me equity in the company – but I’d be passionate about this metrics driven customer development platform either way.

Social Media Marketing Strategy for Startups

In the last year, Social Media sources (blogs, Digg, Twitter, Facebook, etc) have quickly emerged as the most powerful growth drivers in the startups I’ve helped launch. Despite this, I’d have a hard time writing a ten page book on Social Media Marketing. So on a recent trip to Barnes & Nobel I was surprised to see several thick books on the subject. One contained over 350 pages of social media marketing “wisdom.”

I’m sure there are a few useful nuggets in each of these books, but I doubt it would be worth wading through hundreds of pages to find them.

This will be a very brief blog post explaining how we’ve been able to drive hundreds of thousands of new users through social media in recent startups. OK, here it is: effective customer development… By figuring out who needs your product/service, why they need it, what constitutes a gratifying experience with the product/service and getting more of the right type of people to this gratifying experience (highlighting the right benefits and reducing barriers) social media can become a powerful driver for your business too.

You are probably asking: How can this possibly be an effective Social Media strategy? To understand this, you need to understand why social media is important for startup marketers. The most relevant part of social media is that it includes a person’s network of trusted online contacts. Some of these contacts broadcast their opinions widely through blogs, others a bit more narrowly through twitter and status updates and finally others through facebook wall posts, etc. Social media has given consumers better access to their expanded personal networks and a megaphone to broadcast their opinions and experiences to people who actually care.

So how does this help startups? The best innovations have always come from startups, but we’ve been blocked from the channels that were so critical for established companies. Over time these companies educated the channels and expanded their presence. A little startup had a very hard time competing even if they had a vastly superior product. And the channels were seldom awarded for trying to help the startup, since most startups went out of business anyway.

Today, social networks make it much easier for useful innovative products to spread to the masses (especially when combined with Google Adwords). But for a startup to leverage these social networks, they need to get their innovation into the hands of the right users and ensure they have the right experience. And if they are able to create a clear value proposition, these users will be able to more easily spread the innovation to their networks.

While social media makes it easier to spread useful innovative products, it also empowers vigilante customers that have been wronged. Therefore be very careful trying to game these systems. One of the most common short-term gaming tactics is address book scraping where users are prompted to invite their entire address book to join a service. This is often successful because a small percentage of users inadvertently agree to allow their address book to be scraped when they initially sign up for the service. If one in ten people get their address book scraped and each one has 100+ contacts, growth quickly goes viral. In the short-term the marketer looks brilliant as numbers go through the roof. But many of these (former) customers are now furious and let their network know about it. Eventually these tactics bite the company in the ass.

One of my favorite travel services recently burned my mother with this tactic (after I introduced her to the service). Not only has she expressed her anger to every contact, I will never recommend the service again. And that is after I earlier blogged about the service and verbally recommended it to many. I’d reveal the name, but a good friend is an investor. Was that really worth the short term gain of address book scraping?

Effective social media marketing is really just about good old fashion doing the right thing for your customers. Once you’ve accomplished this, you can use these networks to enhance your relationship with your customers (through a company blog, twitter account, facebook page, etc), but I believe these tactics are minor compared to the approach described above.

Startup Theory VS Reality

In addition to recently starting two new customer development projects, I’ve also been busy prepping for my guest lecture in Steve Blank’s Customer Development course at Haas (UC Berkeley business school).  The lecture was Tuesday night.  One of my key objectives was to help the students understand that everything seems intuitive and easy in the classroom, but in the heat of execution you quickly get overwhelmed.  A single board member demanding quick growth can easily push you from a logical sequence of figuring things out to desperately throwing money at potential growth drivers.  Anyone who thinks it’s going to be easy is in for a big surprise. 

This blog shares the objective of grounding entrepreneurs is reality.  Most entrepreneurs (especially first timers) are unrealistically optimistic.  If they logically thought about the risks, they probably wouldn’t be starting a company in the first place.  The chances of failure far outweigh the chances of success.  But everyone thinks they are the exception to the rule – and some actually are…

I’m often disappointed that I don’t have more time to update this blog.  I guess if I did have a lot of time to update the blog, it would be full of impractical theory that isn’t grounded in reality.  Real entrepreneurs (not the armchair wannabe entrepreneurs) would quickly recognize it as an exercise in mental masturbation.  But I understand that the infrequency of my posts causes some readers to forget about it.   So rather than risk the impression that I’ve given up on the Blog, I’m going to try to start posting on a regular schedule – a new post every Monday. Fortunately the majority of my readers don’t have time to read several posts per week.  They are busy growing their own startups, etc.