location based blog: Fred Wilson On Marketing

You asked for it Arnold and 84 others (so far). So I'm gonna talk about marketing.

I believe that marketing is what you do when your product or service sucks or when you make so much profit on every marginal customer that it would be crazy to not spend a bit of that profit acquiring more of them (coke, zynga, bud, viagra).

A very experienced and successful entrepreneur came into our office a week ago to pitch his latest company. At the end of his pitch he showed us some numbers. Normally for a raw startup we see almost all product and engineering expenses (headcount). But his plan had a monthly budget for customer acquisition. After he left, we talked about his plan and my partners focused on the customer acquisition number. It bugged us. It felt wrong.

So a few days later, I called him. We talked about what we liked about his plan and pitch and what we didn't like. I brought up the customer acquisition line item at one point in that call. He said "every company needs a marketing budget." It seemed like a strong reply but in truth not one of our top performing companies had a marketing budget in their initial business plan.

Zynga has spent millions on customer acquisition and continues to do so. But in the beginning, when Zynga was three or four people and they launched Texas Hold'em on the brand new Facebook Platform, they didn't spend any marketing dollars. That was the beauty of that time and that plan. The Facebook Platform was free distribution. Zynga rode that free distribution to millions of users, profits, and additional games. Only then did they start marketing.

In my talk at Harvard Business School, I said "Early in a startup, product decisions should be hunch driven. Later on, product decisions should be data driven". I've seen that line tweeted a thousand times since then. Clearly people like that rule. Here's another.

Early in a startup you need to acquire your customers for free. Later on, you can spend on customer acquisition.

So if you need to acquire customers for free early in a startup, how do you do that? There is no one right answer, it depends a lot on who your customer is and how hard the sell will be (consumer/enterprise and free/paid). I'm not an expert on enteprise focused SAAS businesses. I am not going to address that part of the market here.

For the consumer/free part of the web, there are some obvious things you will want to do:

1) Twitter - so many entrepreneurs have asked me "how did you start a company before Twitter?" Twitter is that free distribution that Zynga got on the Facebook Platform. You can and should get the word out about your product/service on Twitter and Facebook. You should encourage your friends to post about it, retweet about it, and encourage people to try it out. The digerati hangs out on Twitter and will see the tweets and RTs and many of them will try it out.

2) Social hoooks - Your product/service must be social. It must encourage your users to invite others to try it out. Hooks into Facebook and Twitter are obvious. Email invites are another obvious feature. The product should allow people to express themselves in it. Profiles, personalization, etc will allow the users to feel ownership of the product and tell others about it. Foursquare's adoption of a game dynamic when it launched is a particularly clever implementation of a social hook. Games are the most social of all things on the web.

3) Find entry points - MySpace launched in the holywood crowd that were friends of Tom and Chris. Twitter launched in the SF tech community that were friends of Ev and Biz and Jack. Tumblr launched in the "roll your own blog" avant garde community that David was part of. Quora launched in the Facebook alumni community. Facebook launched on Ivy League campuses. You get the idea. Find an obvious group of like minded people who know each other and launch into that community. If they like it, it will spread throughout that community and eventually beyond.

4) Events - Find live events to launch at. SXSW is famous for breakouts. Twitter and Foursquare are the two most talked about examples. I worry that SXSW has become so big and so many companies are planning to breakout there now, that it can't happen anymore. We will see. But there are many live events that you can attend and galvanize users at. GroupMe did a version of that at the Austin City Limits music festival. I've heard of companies breaking out at Burning Man, The Democratic National Convention (Airbnb), and the Sundance Film Festival.

5) PR - Do not hire a PR firm to do your free marketing for you. This is a core capability you must own. You can and may want to hire a PR firm to supplement your efforts, but that's a different story. The best companies know how to become the story and work it. Being in NYC helps a lot. Foursquare is a great example of this. You can laugh at Dennis and Naveen doing fashion shoots but think about how many new users they got for doing that. It was a stunt like any other stunt they've done. And they have done hundreds of them. The media eats it up as they always need something to write about. Twitter is another example of a company that owned its PR. Biz is a master. At the same time Biz and Jack were iterating on the product, Biz was thinking about the brand, the story, the bird, the logo, the meaning of Twitter in the world. And he got out there and started telling the story. He is an evangelist and he did it so well. Twitter would not be Twitter without that effort. If you don't have a Biz or Dennis on the founding team, find someone who can do this for you. But I will say that the best PR centric startups have the "media DNA" in the founding team.

6) Search - It is not first on the list for a reason. I don't think search driven businesses are interesting. Live by SEO, die by SEO. Don't be a google bitch. But you will notice that many of the top consumer web brands are higly SEO'd. Try searching on a person's name who is active on Twitter. I bet their Twitter feed will be one of the first five results. It is for my name (if you take out dups). Flickr did this very well. So does LinkedIn and Crunchbase. SEO is something that takes time to pay dividends. But you should build your product day one to be search friendly and keep at it. You can break your SEO with product changes and be careful not to do that.

7) Developers - I've said many times that developers are the new power users. Twitter is the iconic example. By launching with an almost totally open plaform and a dead simple API, Twitter got thousands of developers to build products that had "Twitter inside." Those developers and their products pulled Twitter into the market. Soundcloud is another great example. There are a ton of apps that people use to create music and other audio experiences that have "soundcoud inside." Each and every one of those apps is a distribution channel for soundcloud. They are pulling Soundcloud into the market. So build your product as platform from day one. And once you get traction on your product, do things that will cause it to become a platform, Foursquare is doing this well. They first got millions of users and now they are developing a vibrant ecosystem of third party developers. They did a hackday this past weekend that was very successful.

8) Build a great product - I'll end with a return to where I started. Marketing is for companies who have sucky products. If you build something that is amazing (think Flipboard or Instagram or Instapaper) people will adopt it because it is amazing. And you won't have to do much marketing, at least at the start.

So that's what I got on marketing Arnold. What do you think?