Marketing: The Enduring Secret Sauce
Written by: Lew Brown, Partner, bluesalve Partners
In the course of our work we often come across companies that don’t consider marketing to be as critical as it really is. Nearly as often, we see companies that do understand the importance of marketing, but strategize and execute it poorly. Thanks to analytics, it's easier and more cost effective than ever to reach the right audiences with segmented messages targeted to the proper channels.
Marketing is inextricably connected to selling, whether the sales targets are end customers, partners, investors or your own employees. Clear knowledge of your mission, brand position, attributes and, most critically, how to articulate the problem you are solving, are all essentials for success. As an example, vendors in the smart home sector called the category “Home Automation” for decades before eventually realizing that only wealthy people and gearheads cared about automating their homes. It wasn’t until companies started selling specific smart home solutions, such as energy management, security, and aging-in-place, that the vendors were able to broaden their reach beyond the niche.
Who Is the Target and Why?
Marketing activity should always begin with these two questions. That's why we always stress discovery before moving on to strategies and tactics. In many cases, particularly with startups, the first audience for marketing isn't necessarily the people that will end up using the product. The more meaningful target for business success might be distributors that could make more sales possible, investors, or strategic partners that could expedite or scale the business plan. In cases where it really is appropriate to focus on the end consumer, smart marketers often take a clever but counter-intuitive course. To get to the winning end of the "80-20 rule" in their addressable space, they go after the niche 20% first.
A Textbook Case
For a good example of how canny marketing can be the differentiator in an evolving tech category, look no further than the smart home company SmartThings. The company launched itself on Kickstarter with a relatively undifferentiated product that wasn't fully developed. Their offering -- an app-based, DIY smart home monitoring system -- was largely identical to competing systems on and off Kickstarter. Their campaign was successful; at over $1.2 million, one of crowdfunding's biggest winners to date. Less than 24 months later, the company was acquired by Samsung for a reported $200 million.
Marketing for a crowdfunding campaign is usually straightforward, focusing on early adopter B2C pre-purchasers who will contribute cash before the products are ready. SmartThings naturally needed to market to these core Kickstarter "customers" to reach its funding goal. They represented the 80% of the 80-20 rule. But the company cleverly took their marketing further. They made a specific effort to engage the expert enthusiasts at the corners of the DIY smart home market: developers, makers and tech hobbyists. In other words, the 20% (or less).
SmartThings offered this niche audience a special contributor tier that included an SDK and cloud platform API. This way, the enthusiasts could build their own apps for the system. The inclusiveness made it more attractive for the experts to buy into the campaign as it provided value to them. As a result, their tier sold out, getting 500 takers at $299. The company was able to raise 60% of its initial fundraising goal from a minority market niche that didn't represent their wider opportunity; all while also seeding their solution via their SDK and API.
How The Customer Changes
With a Kickstarter win in hand, SmartThings was able to raise an additional $3 million seed round. Most companies in their situation would have followed that up with the conventional path to market validation – sell, sell, sell. Positive sales traction is generally a pre-condition to raising a Series A round. But SmartThings wisely understood that the conventional retailers of the day were ill-prepared to sell a complex product like DIY security. Their counterstrategy was to start their own e-store, where they could control the customer journey, including marketing and messaging. Deals with Jasco, Kwikset and Schlage allowed for the sale of simplified bundled packages; friendly enough for the 80% mainstream consumers.
That move allowed the company to shift its marketing focus from B2C to financial marketing. This is another art altogether, and one that's always necessary, to greater or lesser degrees, when pitching for venture capital. In this new phase, SmartThings' "customer" was not the end user at all. The marketing shifted from a B2C message ("our platform can run your house") to B2B ("our platform can run everyone's house"). The investors bought in at $12 million Series A raise. A year later, Samsung decided that it'd be easier to buy an ecosystem than build one, so they acquired the company.
The Moral Of the Story
SmartThings wasn't the only company offering what it was offering – far from it. Other competing DIY platforms were equally capable, often identically capable. The differentiator wasn't so much the product as it was the who-what-why-when of their marketing. The targets were astutely selected at each stage of business growth and changed course more than once between launch and acquisition. The company was able to navigate these shifts in marketing approach because they had plotted them in the first place.