I invented the highlighted sponsored keyword in 1998. You’ve seen them all over, in news articles and blogs—the keywords in an article that have the double underlining that leads you to more information or pops up an ad. In the picture below, you can see that HP has bought the keyword “led.” Whenever the word is used on the Website, a user can mouseover the double-underlined word and see an ad.
My concept for Nielsen, who sells marketing information derived from point of sale devices to consumer packaged goods companies, was to rewrite cooperating news pages to feature links to Nielsen tables, graphs, and reports on the company. Kind of like what you see now, with ticker links on Yahoo, the Wall Street Journal or others.
Nielsen did not get the concept and could not even consider changing their business model—charging big brands millions for access to their databases—to a model involving retailing their information.
My concept was the hyperlink would go to some basic information about the performance of the brand, and on that page, there would be a link to purchase a report, either on the company or on one of its brands.
I got nowhere.
Later, at an early SaaS startup in 1999-2000, I tried again. Again I got nowhere.
Now as I say in another blog, having a great idea is not enough. This sure proves that point. For a variety of reasons, I abandoned my quest to monetize this invention. Instead, marketers with more stick-to-itiveness than I, such as IntelliTXT, an “in-text” advertisement platform developed by Vibrant Media, or AdChoices, went ahead and made businesses out of this idea.
In parts 1, 2, 3, and 4. I looked at Mistakes 1 through 14, learned between my first startup, and when working inside and outside startups.
In this final part, I take a look at some final, serious, mistakes.
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Mistake #15: Understand what you should keep secret
In 2008, another startup I advised, and was briefly president of, was based on a keen understanding of the growing power of smart phones. The technical founder (see Mistake #13) had worked out a way of delivering very high-value services over a smart phone and insisted that we had to create our own hardware, despite the fact that the iPhone or even the early Android phones would have worked just fine.
When I suggested this to him, he’d go off on all the reasons why this was a bad idea. The guy really loved to talk about the technology, and to show how brilliant he was.
So he goes to a meeting with an established player in the space that was delivering the same service using trained agents. This company was quite large, and he was talking to their top people. Before he went on the trip, I told him not to get too detailed about the tech when talking with company.
Yup. He white-boarded the whole thing for them and, guess what, they came out with a very similar product for the iPhone about nine months later.
The guy got sued by two of his consultants, got investors to pay them off, and then disappeared, and nobody knows where he is now.
Mistake #16: Get the market timing right
In early 2009, I figured there was money in teaching business people how to use social media. I decided to offer in-person and online training, and by late spring, I was making a little money doing this.
One of my partners had tried to get me interested in this business back in 2007, but I wasn’t interested.
Well, by the end of 2009, there were so many people giving away social media training that the bottom fell out of the market. What used to cost hundreds of dollars was difficult to sell for $19 and I exited the market.
Mistake #17: Nobody will work as hard on your vision as you will
I’ve alluded to this in the preceding, and it really has been an underlying theme throughout my experience with startups. You may have co-founders or partners; you may have the cream of the crop of talented people working with you. That’s great. Just don’t expect them to match your passion.
Look for that passion in those you work with, and surround yourself not with the merely or even supremely competent, but with people who will outwork you and who will drive you to excellence.
The Last Mistake
The last mistake you might make is to assume that these are all the mistakes you need to watch out for in your startup. Heck, another half dozen or so mistakes occur to me now, off the top of my head.
None of this stuff is gospel, and I’m sure you’ll discover a few mistakes on your own.
But if I can leave you with just one more piece of advice, it’s this: Constantly challenge your assumptions.
You may find, as many startups have, that to be successful you need to completely let go of your mission, your plans, your partners and staff, and even your startup’s very reason for being. Being an entrepreneur means being flexible. It means being utterly convinced of your direction, but being willing to turn on a dime. Pivot, if you will.
So those are the mistakes I learned from 17 startups. But wait, you say, I thought you were in 19 startups? Ever the optimist, I’m currently in two startups, with partners. Each has got a unique product, without any real competition, looking for first mover advantage, and if we just can get 1 percent of the market . . .
If you’d like to hear about the other half dozen startup mistakes I didn’t write about, request them below. I’ll talk about one mistake per request.
Also, if you’ve got your own startup mistakes to share, do so below.
This one seems like a no-brainer, but I assure you, it’s not.
In mid-2004, I joined a startup founded by a buddy of mine and a guy he knew. This was by far the most successful startup I have been involved with, eventually producing six-figure revenues. But the founders didn’t raise enough money.
The company originally set out to raise a million dollar seed round. However, there was such a high demand for shares that the company cut off the round at $300K. “Why should we give away so much equity,” they reasoned. “We’re obviously on to something and won’t need the money.”
Wrong. They held on until late 2005 and then shuttered the company. I lost $30K on that one.
I’ve seen this problem in every single startup I’ve been involved with. So I can’t emphasize this enough. Would you rather have 1 percent of $1 billion, or 51 percent of a failure?
You must raise enough money to be successful. However, I believe if you can do it without involving the vulture capitalists, you’ll be better off in the long run. Remember that most VCs will only give you money if you can prove you don’t need it.
Mistake #12: Not having a contract
I got brought in to advise a biomedical company that had a unique product—imagine that! Their founders weren’t taking any salaries, and they were inches away from FDA approval. The buddy who brought me in was their CFO. He’d mortgaged his house, drained his IRA and was living on fumes when the FDA approval finally came through.
And they sacked him.
He had no legal relationship with his partners, and so he had to sue them to try to be made whole.
Get it in writing.
Mistake #13: Beware of the bull-headed founder
I got involved with a three-year-old startup that was building an online product in the financial services arena. The founder was a software developer, and I almost want to add this as another mistake: Don’t trust technical founders.
The founder was brilliant technically, but he insisted that his ecommerce product be free to all parties. I couldn’t shake his absolute belief that the company could prosper by simply taking the float on the money it handled.
This was in late 2007 and we all know what happened in 2008—the Great Recession. The float turned out to be a fraction of a percent, and his business model was toast.
He eventually came around to my way of thinking, and we found a new business model but by this time, nobody wanted to hear about his financial product.
Mistake #14: Trust but verify
In that financial ecommerce startup, there were a couple of consultants who were advising the group. One was a patent attorney who was handling the patent application for the technology.
Not only did this guy represent that the patent application fee was thousands of dollars more than it really was (to cover his fee that he didn’t disclose), but the patent application showed an LLC he created as the patent holder.
In Part 1 and Part 2, I looked at Mistakes 1 through 7, learned at my first startup in 1999 and when trying to start my own company. In this part, I take a look at mistakes learned when joining other peoples’ startups and starting a company with a co-founder.
In early 2004, I joined a startup led by a guy whom I knew had had some previous business failures. He gave some convincing reasons for these failures, which I mostly believed. However, he was putting together the proverbial “NewCo” without a clear idea of what the company would do—just something in leading-edge tech. I suggested we focus on a then-new technology, Radio Frequency Identification (RFID) that was finally starting to get some traction after years on the verge. Walmart had just begun requiring that every pallet delivered to their warehouses had to have an RFID tag on it.
With my consumer packaged goods and syndicated data background, I suggested that while the consulting and sales of RFID systems were lucrative, the real value was in the supply chain data produced by the backend management systems. I proposed that we focus on that.
The CEO brought in a consultant to help the by now quite large NewCo working group sort out the way forward. Since this consultant was brought in to be impartial, we were told he would be ineligible to join the resulting NewCo in any capacity.
The guy did the gig, half the potential founders decided to go off and found a general IT services company, and NewCo soldiered on along the RFID services path. But now, despite the previous promise, the CEO said he was giving the consultant a seat at the table. Long story short, I challenged that and some other shaky ideas, and got booted out. NewCo never succeeded, but the CEO did manage to eventually create an RFID business with another partner which lasted awhile.
Mistake #9: Don’t take your eye off the ball
In some ways, this next story demonstrates Mistake #6 as well, but this was mostly on us. In mid-2004, I started a wireless Internet company with a partner. My original concept was a Geek Squad for consumer Wi-Fi, but my partner convinced me there was more money in business wireless.
In looking for a piece of infrastructure for our system, we became allied with a local Internet hosting company, who offered to handle all the technical aspects of our business. We landed a local hotel ownership company and built out two of their hotels. We were about to get a third hotel in a no-bid deal, when we became aware of a problem at the first hotel we had done. It turned out the original equipment selected and installed by our partner could only serve 100 simultaneous connections (the hotel had more than 200 rooms plus a full health club). Our partner knew this, and without letting us know, had been for months fielding help desk calls from irate customers who couldn’t log on.
It’s almost as if they wanted us to fail . . .
When we had the “come to Jesus” meeting with the hotel manager, suddenly we were told we were no longer going to be able to even bid for the new hotel’s business. Guess who got that contract? Our erstwhile partner, of course. And they eventually took the business for the other two hotels from us.
And it was our fault. At the beginning of our relationship with the hotel manager, we checked in with him regularly, but, since things were going so well, we allowed ourselves to get distracted by our business development efforts and were unable to nip his problem in the bud, before it lost us the business.
Incidentally, the owner of the hospitality company is now in jail for fraud, so perhaps this was a blessing in disguise.
Mistake #10: Being right doesn’t count if you’re not effective
My wireless company had another partner, one that wanted to run fiber optic cable to the premises in a rural tourist area. They were going to offer triple-play services—phone, Internet, and TV— at a really nice price point and they were interested in us covering the main tourist town and marina in the area with “convenience Wi-Fi” as part of their offering. They originally wanted us to install this right away, before the build-out of the fiber, so they could create buzz for their coming triple play product and secondarily for the revenue.
So we surveyed the town, worked with an equipment vendor to design the network, got all the quotes from installers and such, and were ready to go. We were projecting ROI within 18 months. But then our partner got a new vice president of marketing. This guy took one look at the plan and decided it would cannibalize their triple play product. I argued with him that anyone who would prefer 1 megabit Internet to 1 gigabit Internet plus phone and TV was not going to buy the triple play product in the first place.
I was probably right. Didn’t matter. The VP killed the project. The company began to run out of money, and I did get to meet one last time with my buddy, the VP of engineering, and said, “Gee, it’s too bad you didn’t have some kind of alternative revenue source to tide you over until you found your next round of investment.” He gave me a look, winced, and said, point taken.
In Part 1, I looked at Mistakes 1 through 3, learned at my first startup in 1999. In this part, I detail some of the mistakes I learned from while trying to start my own company.
On My Own
I ended up striking out on my own in late 2000 as an IT strategy consultant with a couple of initial clients that kept me very busy. Many people said to me, “Gee, this is a strange time to be going out on your own. There’s a downturn coming.” If figured my two good clients would be enough for me to ride out the downturn.
I don’t know if I should admit this or not, but I’ve been involved in one way or another in 19 startups. In some cases I’ve advised them. In some cases I’ve invested in them. In some cases, I was one of the principals.
The reason I’m not so keen on admitting this is because I’m not writing this post from my private island in the Caribbean, but from my home office in Minnesota. Where I have a day job.
So the deadline for the RFP response was 4 pm. At 10 am I found out that the three signatures on an MOU I needed had not in fact been gotten on Wednesday and I had to get them myself. The last sig I needed I got at 3:38. No prob. All I had to do was write the budget narrative my resource hadn’t written, assemble all the MOUs, paste in the budget spreadsheets and org chart, paste in my boss’ sigs (she was out of town) check everything over against the requirements and email the thing off . . . at 3:54. What was I worried about? It was only $2.75M on the line . . .
When I first wrote this article back in 2001, it was titled, simply, The Death of the Brand, and eCommerce was a relatively new thing. Google was a couple of years old; Amazon was five, but not nearly the dominant giant it is today. Other current trends and concepts such as Web 2.0, social networking, blogging, wikis, and instant messaging were just ideas, if that.
Back in 2001, said: “Imagine a day, however, when it is possible to evaluate all these product qualities instantly, objectively, and in real time. Would that not reduce our dependence on brand? And at the same time, would that not reduce the effectiveness of advertising?”
That day arrived a while ago, and brand marketers are still dealing with its aftermath. Their world is rapidly changing around them, and many still cling to a concept that is becoming less and less relevant: brand positioning.
OK, the original title of this post was a bit of hyperbole, but it’s not an unthinkable concept. Of course, there will always be brands, but the days of brand owners thinking they can control what we think about a brand may be ending.
Simon Knox said, way back in 1996[i], “In the future, it is not going to be enough simply to consider how responsive each customer group is to your brand, you will need to know how responsive your company can or should be in meeting the total needs of customers who buy from across the categories in which you compete.” Sounds a bit like a prescription for marketing via social computing, doesn’t it?
Knox continues: “In traditional consumer marketing, the advantages enjoyed by a brand with strong customer loyalty include ability to maintain premium pricing, greater bargaining power with channels of distribution, reduced selling costs, a strong barrier to potential new entries into the product/service category, and synergistic advantages of brand extensions to related product/service categories (Reichfeld, 1996).”
Five years after Knox, Gommans, Krishnan, and Scheffold[ii] recognized that brand loyalty was undergoing a bit of a sea change, and discussed a replacement concept: e-loyalty, which leads to behavioral loyalty, the tendency to keep buying a brand:
As extensively discussed in Schefter and Reichheld (2000), e-loyalty is all about quality customer support, on-time delivery, compelling product presentations, convenient and reasonably priced shipping and handling, and clear and trustworthy privacy policies. [. . .] A satisfied customer tends to be more loyal to a brand/store over time than a customer whose purchase is caused by other reasons such as time restrictions and information deficits. The Internet brings this phenomenon further to the surface since a customer is able to collect a large amount of relevant information about a product/store in an adequate amount of time, which surely influences the buying decision to a great extent. In other words, behavioral loyalty is much more complex and harder to achieve in the espace than in the real world, where the customer often has to decide with limited information.
The Internet brings this phenomenon further to the surface since a customer is able to collect a large amount of relevant information about a product/store in an adequate amount of time, which surely influences the buying decision to a great extent.
Traditional brands with high brand loyalty have enjoyed a certain degree of immunity from price-based competition and brand switching (Dowling & Uncles, 1997). In e-markets, however, this immunity is substantially diminished due to how easy price comparing among shopping agents is (Turban et al., 2000) and due to the fact that competition is just one click away.
Nine years later it is becoming clearer that behavioral brand loyalty is not only difficult to maintain online, but it’s getting more difficult to maintain offline as well. The plethora of online information Gommans, et al. referred to now includes a tremendous wealth of customer reviews, opinions, diatribes, blogs, and wikis such that the potential customer of virtually any product or service can spend days absorbing it all.
Lest you think marketers are oblivious to this revolution in branding, and brand position, Nick Wreden, managing director of FusionBrand, said in an article[iii] back in 2005, “The number of branding failures, many based on ‘positioning,’ exceeds 90%, according to the consultancies Ernst & Young and McKinsey & Co.” The old stuff may be losing effectiveness.
The occasion was McDonald’s announcement – five years ago – that it was abandoning brand positioning, which basically is a way that a company seeks to control how their brand is perceived by consumers by pushing messages at them through traditional media. At the time, Larry Light, McDonald’s chief global marketing officer, said, “Identifying one brand position, communicating it in a repetitive manner is old-fashioned, out of date, out of touch.” Light stated his position even more strongly, heralding “the end of brand positioning as we know it,” calling it “marketing suicide.”
Light was right back then, and even more right today, when brand perception is ever-more deeply affected by social computing. When the millions have found their voices – online – it’s hard to compete with pushed branding messages delivered via conventional media. Add in the detrimental effect of commercial skipping digital video recorders like Tivo, and McDonald’s move five years ago seems even more prescient.
A recent Nielsen survey[iv] of more than 800,000 Facebook users and 125 individual campaigns from 70 brand advertisers found that based on customer purchase intent, Facebook ads that contained social context were four times as effective as standard Facebook ads. Nielsen makes a distinction between “paid” and “earned” ads – typically meaning those mentions produced by public relations or random mentions in the media, but in this context, adding in the concept of ads bolstered by a friend’s recommendation.
What is Killing the Brand
So what is killing the brand as we knew it? A combination of two disruptive technologies: electronic commerce and social computing. Wreden says, “[. . .] consumers now buy based on research and personal value, not on [how] companies seek to ‘position’ their products.” And you know it’s true.
A great example of this one-two punch to branding’s breadbasket is my recent experience buying a laptop. I was in the market for a high-end laptop. I knew what I wanted, based on online research and a few visits to local computer stores: an Intel i7 processor, 4GB of memory, 64-bit Windows 7, 300-500Gb of 7200rpm disk, and a BluRay player. Many “brand” companies build machines in this class, and while researching Compaq, HP, Dell, Toshiba, and Lenovo, I read every review I could.
One reviewer, of an HP laptop what was my current frontrunner, said, “If you really want performance, get an ASUS laptop.” Have you ever heard of ASUS? I had primarily because they make motherboards. But they are not a “brand” company; they spend very little to nothing on marketing or brand positioning.
While researching the recommended laptop, I found a gamer’s laptop forum. Early on in one ASUS thread, forum participants were eagerly anticipating the release of ASUS’ N61J, which had actually occurred a few days prior to my search. As I read through the thread, I heard lots of stories about, and respect for ASUS by gamers, arguably the most discerning of laptop owners. They were sure it was going to be a hot laptop, and, further down in the thread, when one of them actually bought one, the clamor for a review and pictures was amazing.
So I found a gamer-oriented store in Nebraska, ordered mine, and it’s everything the gamers said it would be. (My only disappointment is the very weak 6-cell battery; I hope they come out with a 9- or 12-cell for it soon.)
Similar scenarios are playing out all over the Web right now. Big and small brands are being evaluated by actual consumers, and more and more, the little guys are winning.
The revolution against brand is nowhere near over, but, according to Wreden, “Even a top executive at advertising giant Leo Burnett is willing to stand before his CEO peers and admit, ‘the old ways of marketing are not working anymore.'”
Lack of Metrics One of the Culprits
In a very ironic trick, brand positioning has partly been done in by a lack of measurement. I say ironic, because one of the very first objections we get when pitching social computing strategy engagements is, “How can we measure it?”
Social computing is exponentially easier to measure than your typical brand marketing effort. Even in “Positioning,” one of the books that started it all 20 years ago, authors Jack Trout and Al Ries stated “mind share is more important than market share.” The authors further equated brand positioning with mind share in this passage: “”Positioning is not what you do to a product. Positioning is what you do to the mind of the prospect.” But how do you measure mind share?
Today, you actually sorta can. One of the concepts we teach in our social computing training is that Share of Conversation is more important than many other standard marketing metrics, and a decent metric to use in measuring the success of your social media efforts.
Share of Conversation is the degree to which an organization is associated with the problem it seeks to solve. It is measured by the percent of all people talking about a problem online that are talking about you. This is a real measurement, and a fairly good proxy for measuring mind share.
So, yes, it’s ironic that a metric that could measure the effect of brand positioning arrives on the scene and hastens the demise of this marketing staple.
But I’d like to address another aspect of the “but how do we measure social media?” canard: the lack of measurement of marketing in general. Wreden referred to a study in his article, “Despite [measurement’s] importance, fewer than 20% of companies surveyed have developed meaningful metrics for their marketing organizations, according to the technology-based CMO Council. Over 80% of the companies surveyed expressed dissatisfaction with their ability to benchmark their marketing programs’ business impact and value.”
Thus, the immediate question all of our prospects ask is one they’re probably not asking of their existing marketing, and especially branding, efforts. We feel it’s a sign of a general discomfort with the rapidly growing social computing phenomenon rather than an insurmountable objection.
The Death of Marketing Departments?
Not to dwell too much on Wreden’s excellent article, I was especially struck by this item – remember this was written five years ago: “[. . .] Forrester recently reported that companies are looking at disbanding marketing departments and distributing its function among sales, customer service, etc. While that is definitely eyebrow-raising, it’s a logical outcome for a function that represents the second biggest outlay for most companies, yet cannot generate the metrics to justify those expenditures. ‘Awareness’ and ‘position’ just don’t cut it anymore in executive suites.”
Wow. Can’t say I’ve noticed this trend in the intervening five years, but I do know a lot of marketing folks who have been laid off in the current downturn . . .
But I’ll leave you with a bit more from Wreden’s just to show that some brands get it:
McDonald’s advocates “brand journalism,” or tailoring products and messages to both targets and media.
By recognizing that it is better served by adapting itself to customer requirements instead of preaching a “position,” McDonald’s is definitely on the right track with “brand journalism.” but the term is awkward for several reasons. A better term for this customer-driven strategy that reflects today’s branding realities is “brand wikization.”
Born from the Internet’s ability to link an archipelago of people and information, wikis are the mirror-image of blogs. While blogs reflect one person’s worldview, wikis, written collaboratively by contributors from all over the world, reflect a common judgment on an issue. Definitions depend not on what Funk or Wagnall or Webster say they should be, but on what thousands or even millions of people agree on what they are.
In much the same way, brands today are collectively defined by their customers.
On October 22, 2009, CareerOneStop , the program I manage, was the recipient of a Tekne award , presented by the Minnesota High Tech Association. We’ve all been in shock since then, and finally I’ve got the time to blog about the experience. We were up against strong entrants in the IT-Software & Hardware, Communications and Infrastructure category: Imation and QLogic Corporation.