When your startup accepts outside money (such as venture capital), you are obligated to focus on maximizing long-term shareholder value.  For most startups this is directly based on your ability to grow (customers, revenue and eventually profit).  Most entrepreneurs understand the importance of growth; the common mistake is trying to force growth prematurely.  This is frustrating, expensive and unsustainable – killing many startups with otherwise strong potential. 

Most successful entrepreneurs have a good balance of execution intuition and luck.  This was definitely the case at the two startups where I ran marketing from launch through NASDAQ IPO filings.  While we didn’t follow a specific methodology, our CEO was intuitive enough to know the right time to “hit the gas pedal.”  We didn’t accelerate until verifying that the team had created a great product that met real customer needs and we could generate sufficient user revenue to support sustainable customer acquisition programs.  It’s taken years for me to realize that our growth was less a function of clever marketing tactics than beginning with something that customers truly needed.  Some growth would have been automatic; the marketing team simply accelerated this growth.

Several startups later I have a much better understanding of the key milestones needed for a startup to reach its full growth potential.  These are based more on observing universal truths than inventing some type of methodology.  Reaching the full growth potential of your startup requires focus, specifically focusing on what matters when it matters.  In my post on the startup growth pyramid I talk about the high level milestones you must achieve in order to unlock sustainable growth.  This post looks at it on a more granular level with links to several of my previous blog posts and other resources that provide additional details.

Day 1: Validate Need for Minimum Viable Product (MVP)

Before any coding begins it is important to validate that the problem/need you are trying to solve actually exists, is worth solving, and the proposed minimum feature set solves it.  This can best be achieved by meeting with the prospects most likely to need your solution.  Steve Blank published a great post on this today.

Eric Ries offers more details on the minimum viable product concept in this post/video. 

Where’s the Love?

Vinod Khosla, one of the most successful Silicon Valley VCs in history, once suggested to me that startups should think of their early users as a flock of sheep.  He explained “the flock always finds the best grass.” 

For you this means you should start looking for a signal about who loves your product and why as soon as you release your MVP.  Most products have at least a few people that truly consider it a must have.  These people hold the keys to the kingdom.  Learn everything you can about them including their specific use cases and demographic characteristics.  Try to get more of these types of people.

A good place to start collecting this information is the survey I’ve made freely available on Survey.io (a KISSmetrics product).    You can read more about this product/market fit survey in this blog post. 

If you’re lucky you’ll be able to use this early signal to find the product/market fit.

Expose the Core Gratifying Experience

The majority of our project focus at 12in6 recently has been helping startups find their core user perceived value and exposing it in messaging optimized for response.  Your objective should be to remove complexity from the initial user experience and messaging in order to highlight this core user perceived value.  Often this means burying or even completely eliminating features that don’t relate to this gratifying experience.

Metrics

Metrics don’t matter until you achieve product/market fit – then they are critical to your success.  Dave McClure has a great video on startup metrics that matter (relevant part is at about minute 2:20). 

Most of the tools out there provide way too many irrelevant metrics and miss the essential few.  Both Dave McClure and I are advising KISSmetrics on a solution to this problem.

Start Charging

Another key step before growing your business is to implement a business model.  The ideal timing for implementing your business model is discussed in this blog post . 

I’ve often heard the argument that startups are focused on user growth and prefer to delay revenue in the short term.  I believe the fastest way to grow is with a business model and explain why in this blog post.

Extreme Customer Support

Now that you have a business model in place, your first marketing expense should be to expand the customer support team.  Anyone that cares enough about your solution to contact customer support is a great source of insight about your target market.  Also, customer support will uncover issues that will help you grow faster without spending.  And fixing these issues will make it much easier to grow when you do start spending. 

If your customer support team is overwhelmed now, I don’t recommend trying to grow until you address the issues driving most support calls. Once you’ve addressed these issues you’ll have fewer barriers to adoption and will be able to grow without overwhelming customer support. 

This will enable customer support to go above and beyond expectations, which is an important way to drive customer loyalty and enhance word of mouth.  This approach pays more dividends today than ever before – as I explain in this post on Social Media. 

Update: See comments for additional thoughts on extreme customer support.

Brand Experience Over Brand Awareness

Back in the “Dotcom Bubble” days billions were wasted on brand awareness campaigns for startups.  Today most entrepreneurs understand that brand awareness campaigns are a waste of money for startups.

Instead, it’s much cheaper and more effective for startups to focus on creating a fantastic brand experience.  While startups often realize the importance of brand experience, they focus on it too early, fine tuning things that customers don’t care about.  Instead, wait until you understand why certain customers love your product; then obsess over every element of this customer experience. 

Apple is probably the best tech company out there on coordinating a perfect brand experience for its target users. I cover more on brand experience in this blog post. 

Driving Growth

Once you’ve achieved all of the previous milestones, then you can focus on driving growth.  CEOs must take an active role in driving customer growth whether or not they have an interest in marketing. Nearly all of the risk and upside in a startup is in your ability to gain customer traction and then drive scalable customer growth. The CEO should not abdicate this responsibility to the marketer.

It’s important to stay aggressive and take all slack out of the market (make it completely uninteresting to pursue the market for any other competitor).  Your early advantage is the ability to iterate on the customer feedback loop and leverage strong customer loyalty to drive word of mouth.

While ROI lets you know if a user acquisition channel is sustainable, the key focus should be on exposing lots of the right people to your fantastic product experience.  It’s much easier to get passionate and creative about this than purely thinking about things from an ROI perspective. Of course positive ROI is essential for any customer acquisition program to remain in the mix.

When it’s time to hire a marketing leader to partner with the CEO, this post explains my recommendations for an ideal startup marketing leader.  The most effective startup marketers are relentless about experimenting with channels until finding things that work. 

Start by building out free channels such as listing in directories and basic SEO.   When you begin building paid channels, extra effort should be put into channels that show strong potential for scale. 

Unfortunately you can’t count on effective online tactics working forever.  I’ve seen many hot online marketing tactics lose their effectiveness over time.  This is because online tracking makes it easier for marketers to quickly figure out what actually works.  As a result we start piling into the most effective tactics.   Eventually online tactics get saturated, as explained in this post. 

Business building

Fast growing businesses are difficult to manage.  This is the point where you should bring in some experienced operations people if they aren’t already on the team. 

It Won’t be Easy

Finally, the top three risks to growing via these milestones are:

1. You lose patience and decide that one or more of the milestones really aren’t that important.
2. VCs and/or board of directors lose patience because you did not achieve conceptual agreement on this approach from beginning.
3. You delude yourself into believing that for “our type of business” customers really don’t need to consider our product a “must have”.  For us, “nice to have” is good enough.

Building a successful business is hard.  Hopefully this milestone driven approach to growing your startup will make it a bit easier.

Update: It’s hard to write a blog post on “milestones to startup success” that covers every type of startup.  Some startup types may need to reverse the order of some of these milestones.  For example, with marketplaces (EBay, social networks, eduFire, dating sites, etc.) user gratification increases with more users so there is a bit of chicken and egg here…  Ad supported sites also benefit from early scale. Many of the articles linked to from this blog post also cover exceptions such as when a startup should start charging (it’s different for enterprise targeted startups).

Based on anecdotal evidence, I’d guess that 90% of startup marketing leaders don’t work out. This corresponds to the overwhelming majority of startups falling short of expectations of founders and early investors. When a startup falls short of expectations, the startup marketing leader is the first to go. Even those fortunate enough to gain early user traction still face the uphill battle of finding cost effective ways to acquire users at scale. And if they do succeed, then startups are often tempted to hire a “next level marketer” to replace them.

A successful startup marketing leader must be undaunted by these risks and believe they uniquely have what it takes to succeed. That sounds a lot like the profile of most startup founders. So it’s not surprising that the best startup marketers are entrepreneurs at the core. Entrepreneurs are willing to take the risk and are generally tenacious enough to uncover the channels necessary to drive long-term growth.

I came to this conclusion after finding the common thread between myself and the two most effective people I’ve met at uncovering growth channels. One is still CEO of his company but has done more to drive customer adoption with a fraction of his time than most startup marketers do with undivided attention. The other highly effective startup marketer is a founder that transitioned to leading marketing. They share a persistent desire to connect their innovative solutions with the people that really need them. After implementing critical tracking systems and an efficient customer acquisition process, they are now relentless about experimenting with channels until they find things that work.

Contrast this to a typical marketer, who is generally more focused on marketing activities than marketing results. Most of these activities do nothing to move the needle on the business, but make the marketer feel good because they are working hard.

It may be tempting for a startup CEO to read this and think that aggressive targets can steer the marketer in the right direction. I don’t think that will work. Effective marketing leaders will challenge themselves by pushing the boundaries of the startup’s growth potential. The CEO should be a partner in this process rather than setting arbitrary unrealistic goals. If you don’t have confidence in your marketing leader, the founding CEO should micromanage the process by being an active participant in channel brainstorming sessions and challenging the marketer to ensure tests have been implmented to perfection. Once you have created a product that people really want, most of the remaining company risk and upside lies in your ability to aggressively drive customer adoption. This is not something a CEO should abdicate to the marketer until they’ve demonstrated a relentless drive to uncover profitable customer acquisition channels.

The CEO can also facilitate channel discovery by ensuring that the marketing leader gets the tracking systems they need to execute marketing efficiently. Of course the marketer should be able to make a case for why these resources are important.

What about successful startups that had an initial marketing leader with a more traditional background? First, there is nothing wrong with a traditional marketing background if at the core the marketer is entrepreneurial. Second, the marketer does not always deserve credit for strong user growth. Sometimes great products really do market themselves. My experience with Dropbox certainly supports this assertion. Also, I recently spoke to the former VP Marketing at a company that sold for billions and he agreed that his most important growth contribution was not getting in the way of the viral growth engine.

Of course the risk in hiring an entrepreneur to lead your marketing is that they’ll eventually leave to start their own company. Agree that this is an acceptable outcome if they are willing to give you at least a couple years.

Finally, only the marketing leader needs to be entrepreneurial. In my experience, it is not an essential characteristic for the rest of the marketing team.

A newer model is emerging originally sparked by Steve Blank, author of Four Steps to the Epiphany and teacher of customer development at both Berkley’s Haas business school and at Stanford University’s graduate school of engineering. I consider Steve Blank to be the world’s foremost expert on customer development. Through his experience as CEO, Founder or VP Marketing at 8 startups (5 of which resulted in $100m+ exits – the last was E.piphany) and advisor/board member to numerous other startups, he has concluded that the ideal model is very different from the traditional startup approach of abdicating customer development to a VP of Marketing. I completely agree with his claim that none of the traditional VP Marketing skills are relevant in the first two customer development steps of a startup’s life (page 215 Four Steps to the Epiphany).

Given the high VP Marketing turnover rate at startups and more importantly the extremely high failure rate of startups, his model is definitely worth considering vs. the traditional startup marketing approach. His recommendation is to form a customer development team led by a “head of customer development.” The team should include the CEO and spend a considerable amount of time in the field with prospective customers validating/refining hypotheses about their target customers and the problems they are solving. He says this team “must have the authority to radically change the company’s direction, product or mission and the creative, flexible mindset of an entrepreneur.”

After five years in the VP Marketing role at LogMeIn, I too recognized that the initial stages of customer development are very different from marketing in the later stages of a startup or especially a large established company. In fact, I concluded that much of my success as a later stage VP Marketing (both companies filed for IPOs) was the result of momentum we had built in the early stages of customer development. I decided that going forward I would specialize in early stage customer development.

I was first introduced to Four Steps to the Epiphany when I was Interim VP Marketing at Xobni during the first half of 2008. I had been looking for resources to help me understand how to drive adoption of this innovative market-creating product (a very different challenge than we had at LogMeIn which disrupted an existing market). The book provided a great framework to follow as we worked to drive early customer adoption. Since then I have helped to accelerate market adoption at two additional startups, while continuing to advise at Xobni.

Given my obsession with startup customer development, I was thrilled for the opportunity to meet with Steve Blank for coffee earlier this week and was flattered when he invited me to present to his class at Haas on March 10th. We agreed that my approach really begins at his Customer Validation step.

There are two key twists I’ve made to his framework. The first is that I drive the entire process with metrics. In fact I’m working closely with KISSmetrics (where I am an advisor) to define all the tools and reports needed to build a complete Customer Development Platform.

The second twist is that I add a customer development specialist when the Validation Step begins, which is the role I fill with startups. I belive eventually many people will specialize in this critical stage.  Without a specialist, startups waste critical time and resources deciding where to execute. It’s surprising how similiar the process of uncovering the critical information needed to drive customer adoption across different types of startups.

One place where my views diverge a bit from Steve Blank’s is that he suggests that a good candidate for the Head of Customer Development is someone with a product management or product marketing background. The key issue I see here is that experienced product marketers suffer from the “curse of knowledge.” They know enough about product marketing to want to focus efforts on areas that are usually irrelevant to startups. Having the discipline to follow the right process at this stage is much more important than experience. The good news is that I’ve found ambitious, analytical recent college graduates to be ideal candidates. They are easy to find and their salary and equity requirements are also much lower than a VP Marketing – freeing up resources to bring in a customer development specialist. This combination accomplishes more results faster than an experienced product marketer by themself, and generally costs the startup less cash and equity. Of course if you already have an experienced marketer I wouldn’t advocate replacing them.  This guidance is really directed at startups that are trying to hire an experienced marketer – and a warning that you will be paying a premium for skills that aren’t critical at this point.

Once the startup has discovered how to drive customer adoption and begins building momentum, it should be easier to attract the long-term VP Marketing (or promote the head of customer development).

For years Wall Street has used brilliant mathematicians to create investment models that they hoped would reduce risk and generate billions of dollars in investment returns. They increasingly leveraged their investments falsely believing that they had eliminated most of the risk – which of course added more risk.  Unfortunately most Wall Street investments are based on speculation which makes it is nearly impossible to remove risk regardless of the sophistication of the model.  Before I stopped watching the news CNBC was blaming these mathematicians for creating the complicated investment instruments that led to the recent collapse – claiming that even the CEOs didn’t understand them. And it’s not the first time that too much trust has been put into the abilities of these whiz kids. The financial crisis of 1998 has also been blamed on overconfidence in mathematicians ability to predict speculative markets.

I have zero confidence in really smart people being able to predict speculative markets. I’ve never trusted mutual fund managers with my cash – instead always putting most non-angel investments into S&P 500 index funds.

However, this is a place where mathematicians can create vast wealth – and that’s in startups.  The returns in online marketing are a lot more predictable than investment banking.  By knowing the lifetime value of your users, you know exactly how much you can pay to acquire new users with an acceptable profit margin.  As long as you don’t saturate a source, it generally delivers the same ROI with each campaign.  The beauty is that a very small investment can give you excellent guidance for the returns of a much larger investment.  Even with 7 figure monthly budgets, I’ve always insisted my teams test every new media with $5o0 buys.  I’ve used this approach to discover ways to spend millions with a very fast return on investment.

At my last long term VP marketing role, my first hire was a trained actuary (the guys that calculate risk for insurance companies).  And the marketers at two startups I’m working with now are both sharp mathematicians – one recently graduated from MIT with a math major.

I first witnessed the power of marketing number crunchers when I was at Uproar.  In 2000 we acquired a startup called iWin.  In a very short time they had created the second most popular casual game website in the world on cashflow positive results.  Their secret weapon?  Several math whizzes in their early 20s who had spent a year in investment banking before running the iWin marketing and product teams.  They were so effective that they took over the marketing and product leadership at Uproar (I had already moved on to President of Uproar Europe).

The math behind viral marketing is even more intriguing.  Read Andrew Chen’s Blog  for the inside scoop on how it works.  Viral Marketing has created some of the fastest growing companies in history and most have never spent a dime on marketing.  And who is dominating the field of viral marketing?  You guessed it – mathematicians. 

Unlike investment banking where leverage increases both risk and reward, in online marketing leverage only increases the reward.  The 12in6 Methodology is all about focusing on high leverage projects that improve the ROI of every future marketing initiative.

Looking to hire someone to lead your marketing?  Hire one of the recently unemployed Wall Street analysts (and show them this post to get them excited about the potential of their new job).

But that’s post launch.  Before that you have to lay a foundation to maximize your chances of hitting the ground running when your product emerges from private beta.  Important marketing activities include ensuring your product meets real needs of a large addressable market and defining necessary tracking systems to manage and grow campaigns.  I’ve outlined some of the critical pre-launch activities in this post. 

So what happens in between these two stages?  If you’re anything like me, it’s primarily a time of agitated chomping at the bit.  It takes time for engineering to get a product ready for mass market adoption (fixing bugs is the main point of a private beta).  There is only so much research and planning that a marketer can do before the marginal benefit drops below the marginal cost of their time.  Managing a private beta, even a very successful one, takes relatively little time. And optimization is usually irrelevant during private beta, because most early adopters enjoy figuring out particularly tough product installations. 

I’ve heard some argue that marketers offer little or no value pre-launch.  I would strongly disagree with this.  However, I am coming to the realization that it probably makes more sense for marketers to be project based consultants during this pre-launch stage.   As the product gets very close to public beta launch, the marketer can join in a full time intensive role.   Before that, they can spread the cost and benefit of their expertise across multiple startups.  Their ultimate selection of a startup to join full time will be based on an actual understanding of the market and experience working with the team.  This knowledge will help them make a better choice.

This is a change from my earlier recommendations on the ideal marketing process for startups.  I have approached my current role with the goal of figuring out an optimal marketing process – rather than applying firm preconceived ideas of the perfect way to bring a company to market.  I still believe marketers should specialize in either early stage startups or companies that have already achieved firm traction.  Mastering the first part is nearly impossible without lots of repetition and focus.

But how do you gauge the potential of these people?  I may have figured out a critical interview question to ask when hiring unproven talent (and maybe proven talent too).  The question is: “How would you react if you felt like you were underpaid in your position?”

I came up with this question based on a conversation with my younger sister.  She was recently promoted and very disappointed that she didn’t get a pay raise with her promotion.   Most people would lose motivation and begin putting less effort into their work.  A few of us though would take the exact opposite approach.  Defying logic, we would actually work harder, figuring that our salary will eventually catch up to our valuable contribution.  We understand that being underpaid gives us enormous leverage and eventually a smart employer will give us a raise for fear of losing us.

From the inception of my career, I have always taken this approach when I felt underpaid.  And I’ve always preferred to be underpaid than overpaid (much better job security).  I have a feeling that this is a key characteristic of most people that have had success in their career. 

It will be interesting to hear the reactions when I use this question in interviews.

http://www.xobni.com/asmith/archives/72

Adam’s excerpt gives a glimpse into the determination that drove Andy Grove’s success.  As I posted in Adam’s comments, anything is possible when you want something badly enough.

Startup marketing leaders must be hands-on and dynamic.  A marketing executive from a large company is likely accustomed to relying on functional experts from across a big marketing department.  Their role is much more of a conductor than someone who actually executes marketing. 

Additionally, the financial targets at a startup are initially much smaller than those at a large company.  Startups must manage many micro campaigns while they struggle for traction, but large companies must evaluate every marketing campaign for its potential impact against enormous marketing targets.  Small but profitable campaigns generally aren’t worth the time they take to manage. 

Finally, startup marketers must approach their job with much more urgency than their counterparts at big companies. There is no momentum to carry them from quarter to quarter. While they are trying to discover marketing programs with a positive ROI, their company is burning precious cash on salaries and other fixed costs. 

Finding a dynamic marketing leader for a startup is more difficult than it may seem.  Startup marketers must have strengths in both the creative and analytical sides of their brain.  They should possess the creative skills to know what to throw against the wall and the analytical skills to figure out what actually sticks.  And they can’t just be thinkers.  They must also be scrappy disciplined executers. 

It is also important for startup marketers to be both conservative and aggressive.  Initially they trickle in customers to optimize their business model and hone their value proposition.  Once the business model has been refined and proven economically viable the marketer must switch into an aggressive mode to capture market share and quickly scale the business to cash-flow positive performance.  Despite the need for aggressive growth, effective startup marketers must retain the discipline to follow a systematic testing process of measurable programs.  

With the right startup marketer, a new venture dramatically improves its chances of success.  Marketers coming from enterprises succeed despite their large company experience, not because of it.