Startup and Online Marketing Secrets Exposed

This presentation by Dave McClure is the best concentration of online marketing information I have ever seen.  It is a direct contradiction to my recent rant that startup marketers are too protective of their ideas. Dave is definitely open to sharing his very valuable online marketing insights.  Almost everything you need to know about online marketing is included in the presentation.

I wish I would have had a presentation like this when I began online marketing. Of course in the mid 90s no one had accumulated this knowledge yet.

It also expanded my existing knowledge – particularly the last few pages on viral marketing.

I plan to start following Dave’s blog very closely and I’m sure I’ll learn lots of new marketing tricks.

Awareness Building is a Waste of Startup Resources


It’s surprising how many CEO/Founders of startups tell me that they want to hire a VP Marketing to “build awareness.”

Consider this: according to Inc Magazine , the average US consumer sees about 3,000 advertisements per day.  Can a startup really spend enough money to break through that clutter and build awareness?

For at least the first year or two, online consumer/prosumer/smb targeted startups should focus 100% of their non-PR media budget on acquiring customers.  Rather than buying a microsecond of awareness, you can actually use your limited funds to engage users in a real brand experience. Even for users that don’t convert to paying customers, you create a deeper impact by engaging people on your website.  And you can gain intelligence about such things as where and why potential customers are abandoning your acquisition funnel.

Focusing on customer acquisition over “awareness” takes discipline.  There is always some amazing advertising opportunity that could lead to explosive growth.  Your odds are probably better buying a lottery ticket.

Building a strong customer acquisition engine is the best chance you have of creating long-term awareness.  At a certain scale, awareness/brand building makes sense.  But for the first year or two it’s a total waste of money.

The Science Behind Viral Marketing

Many people don’t realize the advances in the science behind viral marketing.   Experts often known as “Viral Tuners” are applying a systematic data driven process to creating viral customer acquisition drivers.  By testing and optimizing the viral elements of a widget or websites they are often able to push the viral coefficient above 1.0.  This essentially means that each new user generates more than one additional user.  In other words, growth accelerates geometrically until saturation.

Even if you can’t get the viral coefficient above 1.0, you can still greatly benefit from virality.  The echo effect of a viral coefficient that falls below 1.0 is still important. For example, if a tracked user from a campaign costs $1 to acquire and you have a .75 viral coefficient, you actually acquire about 3.5 customers for that $1 and therefore your average customer acquisition cost goes down to less than 30 cents. If you can find a way to generate an ARPU (average revenue per user) of $.50 you have a strong business – even if you spend $1 to acquire that first user.  The higher your viral coefficient, the bigger the echo effect of every dollar spent.

Again, if you can get the viral coefficient above 1.0, the echo effect is infinite and your cost per acquired user approaches zero.  Any time you can acquire users for free, a viable business model becomes almost inevitable.  As long as you don’t have a significant marginal cost per user outside the acquisition cost, you simply need to micro-monetize these people and you’ll easily be able to grow a profitable business.

All of the above is pretty abstract, so I’ll give you an example of the only viral growth driver I’ve ever created. Ten years ago I launched a YouTube sized game widget called Trivia Blitz that appeared on over 35,000 websites. Each widget carried an “add this game to your website” link, helping it to spread virally between sites.  We acquired several million users with this widget, paying the referring site 50 cents per user (a small fraction of the average lifetime value each user generated in advertising revenue).  To achieve a high average lifetime value, it was important to transition users from the referring site to the engaging multiplayer games on the website – which was already among the stickiest on the entire web.

During these irrational dotcom bubble years, our competitors were wasting millions on crazy marketing campaigns like expensive branding campaigns on TV or multimillion dollar AOL deals.  By focusing our resources on Trivia Blitz and tightly tracked direct response marketing drivers we were able to take leadership of the game category, surpassing Microsoft, Sony, Yahoo, and many gaming startups backed by leading Silicon Valley VCs.  Trivia Blitz was such an efficient customer acquisition tool that it eventually helped position for a NASDAQ IPO.  Among public companies, Uproar was able to achieve the lowest customer acquisition costs for a free registered user (about 1/6 of Yahoo’s cost which was considered pretty good at the time).

While we didn’t optimize the virality of Trivia Blitz, it is still illustrative of the results that are possible if you can create a viral coefficient above 1.0.  I’m now focused on learning the skills of viral optimization, so I can take something that is slightly viral and fine tune it into a major viral marketing driver.

If you are interested in reading more about viral marketing, I highly recommend Andrew Chen’s blog.  I’ll blog about any other great resources that I find.

Demand Harvesting – The Easiest Driver for Startups

I always begin a new startup marketing assignment by looking for any untapped existing demand.  Demand harvesting is much easier than demand creation – and it has a faster sales cycle.  You don’t have to convince someone they need your category of product, you just need to be easier to find/buy and have a better value proposition than the other guys.

The first question to ask is “where would someone seek my product category?”  Twenty years ago the most obvious answer would have been the yellow pages, but today it is Google.   A lot of information has been published on getting the most out of SEO or SEM and there are also many experts you can tap in this area. Beyond Google, I’ve found it is helpful to survey existing users for other places they would potentially look.   It’s great news when discover healthy demand for your product category.

The next step is to analyze the solutions competing for that demand.  The best situation is to discover heavy unmet demand and no competition.  That is about as likely as winning the lottery, so don’t count on it.  More realistically, there will be a few companies with varying offers competing for that demand.  In this case, you should hope for weak execution from these existing competitors.  If you can be significantly more effective at extracting money from each prospect, you can afford a more prominent promotion at the initial point of connection and begin capturing market share.

If you discover that the existing competitors are executing well, you’ll have to differentiate your offer with a better value proposition for at least a segment of the existing prospects.  This was the situation in my last company.  We faced a well entrenched competitor who was harvesting the majority of existing demand and spending millions every month creating new demand.  Rather than simply trying to out-execute them (they were extremely efficient), we decided to counter with a free-to-premium offer.

This gave us a high response rate among existing main category searchers but also played into a new trend that had been developing over the last few years.   In discovering a new expensive software solution, many prospective customers now check for free alternatives.   For this new segment of demand, we quickly became the dominant market player.  Once we had these users engaged on the free product, we could patiently upsell various complementary premium services.

Whether competing for existing demand or creating a brand new product category, you’ll eventually have to begin creating demand.  This is a much more difficult and unpredictable art that I’ll cover in a future post.

OnStartups Article: Big Bang Vs Darwin Marketing for Startups

Here is an excellent blog post from OnStartups that compares a Darwinian evolutionary marketing approach to a Big Bang approach.  It’s from way back in July, but I found both the article and comments to be insightful:

I agree with the article that a Darwinian evolutionary approach is right way to get a startup out of the gate.  However, the article fails to mention the importance of eventually stepping on the gas by investing in high growth drivers.   Billion dollar companies aren’t created by only focusing on the downside.   

If you’ve done your job right during the iterative evolutionary stage, you’ll have a very efficient acquisition funnel, strong value proposition and a product/service that delivers on the promise of your value proposition.  This makes it much easier to fund profitable outbound marketing campaigns.  With the right tracking system in place, you will be able to identify strong ROI campaigns and cut the losers.  Nothing with a positive ROI is expensive if your pockets are deep enough.  If you have scalable positive ROI marketing opportunities that can’t be funded, it’s probably time for another round of financing.  In this situation, it will be much easier than earlier rounds of funding.

My marketing budget at successful startups grew to millions of dollars per month, the majority of which generated a tracked positive return (the exception being for a small testing budget that was necessary for pushing the envelope into new growth drivers).   Contrary to one of the comments, PR was a great investment when we transitioned into high growth mode.  Trend analysis and surveys indicated that the $20,000+/month spent on PR generated by far our best ROI.  

In my latest startup I will conserve funds as much as possible while we iterate through the evolutionary launch process.  But eventually we will need to shift into a much more aggressive spending mode to reach our full potential.

Great Startup Marketing Post By Entrepreneur-Turned-VC

Check out this excellent post on marketing a startup by Josh Kopelman, Founder and Managing Partner at First Round Capital (one of the VCs behind Xobni).

His key point is that a single event (such as TechCrunch) sprinkled with viral growth should NOT define a startup’s marketing strategy.  He then goes on to explain what should.  His recommendations are right on the mark.