Innovation Is Great, But Markets Matter

This series of articles takes you through the basics of developing and presenting a design idea, obtaining funding, protecting and licensing your intellectual property, and getting your ideas to market. This month, learn about the essential role marketing plays in realizing your design idea.

Ask any marketing undergraduate and they will tell you that a product has absolutely no value until it is in the hands of a customer. Every business person knows this.

Or do they? Do you realize that the number one cause for early-stage business failure is that the company in question either did not know, or did not invest the time to ascertain, whether the product or service to be delivered could, in fact, be sold? Amazing, but true!

As the former Chairman of the Deal Selection Committee for a major angel network, and as an advisor to a mid-sized venture capital firm, I have evaluated literally thousands of early-stage companies. The majority of the firms that failed to qualify for an audience failed because they had done a woefully inadequate job of evaluating their market.

Cash Is King

A company's cash flow starts with sales. Sales directly reflect the quality of the marketing effort. If you cannot accurately define your target market, how can your cash flow projections be anything more than a lovely dream? Very few investors invest in dreams. If you cannot communicate your markets and how you intend to penetrate them, how can you ever hope to defend your company's valuation? And if you cannot defend your company's valuation, how do you think you can get investors to give you their hard-earned money?

But before you run off to conquer marketing's wild frontiers, remember that you have to defend your company. Direct marketing tests are out of the question for most startups. The world is full of pirates, thieves, and brigands. Stated another way, any market will quickly incorporate and re-engineer new ideas. Most professionals like scientists, engineers, and managers are intensely curious people. They will want to know exactly how your mousetrap works. Realize also that purchasing agents, journalists, and buyers are notorious for leaking information to competitors. Most importantly, understand that your competitors do not have a vested interest in your success.

Road to Success

The best approach for most earlystage companies, and often times the least expensive, is indirect or disguised marketing. The following are very simple but effective methods you can utilize yourself. Just make sure to run two or more methods and, by all means, correlate your results.

1. Concentrate your efforts. Focus on who your major customers will be. An all-too-common rule of thumb is that 80% of your sales will come from 20% of your customers. This has been true of every industry and business I have been involved in. Incorporating this rule cuts your effort to manageable levels. More importantly, this rule just makes good business sense. Good relationships mean everything. They are the bedrock to your firm's annuity income stream and its ultimate valuation.

2. Network like crazy. Relationships are seldom developed without a handshake. There is a lot more information to be gleaned from facial expressions and voice inflection than can be gotten from pressing an Internet icon. Get in front of your customer base any way you can. Attend industry seminars and trade shows. Lead discussion panels. Both of these let you ask leading questions to derive market information and direction for almost no money at all.

3. Press the flesh often. Stay in touch. There are plenty of customer-tracking software packages available, but keep it simple. Remember the 80/20 rule. Maintain a simple call log so you can see when you last talked with a targeted customer or key information source. Never let your hard-won leads and relationships grow cold.

4. Library research. Far too many libraries and databases are on-line and available day and night for you not to be able to easily and cost-effectively determine who the key decision makers are in any organization or industry. There are plenty available and many are free.

5. Treat seminars like goldmines. What are seminars but serious concentrations of people you want to meet? To extract the best marketing research possible from these industry concentrations, attend them as teams.

Summary

Poor marketing is the primary reason most businesses fail. Who you know and who will be willing to help you is as important a form of capital as investment dollars. In fact, they are directly related. You cannot acquire investment capital for your firm without an adequate supply of social capital. Take the time necessary to adequately research who will buy your product or service, why they will buy it, and how much they might be willing to pay for what you are offering.

Your marketing plan is not an item for hemming and hawing. If you are ready to directly address how you will grow an investor's money, you will most likely get it. If not, yours will be just another great idea looking for an opportunity.