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5 reasons your digital startup will fail

5 reasons your digital startup will fail Dave Knox
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Over the past year, the startup world has watched Facebook go public in the largest venture-backed IPO of all-time, Buddy Media get acquired by Salesforce.com for nearly $700 million, and Pandora reach a $2 billion market cap as a publicly traded company. One thing that all of these successful startups have in common is that the majority of their revenue comes from brand marketing dollars. These companies have been able to drive explosive revenue growth because they have attracted the world's largest advertisers, including companies like Procter & Gamble, AT&T, General Mills, Verizon, and PepsiCo. And as a result, each of them has grown from being humble startups just a few years ago to dominant players in the world of digital media today.


5 reasons your digital startup will fail


Having that type of success is obviously the aspiration of every startup. But getting to that level of success requires a solid business model that results in consistent (and growing) revenue. For consumer internet startups, there are essentially three main ways to make money: provide media, provide a paid service, or sell a physical product. Many of the startups we work with at Rockfish and The Brandery are targeting that first business model of providing media. In more cases than not, that means that they have built their entire business models on attracting brand marketing dollars.


I am continuously surprised by how many startup founders build their business models around brand marketing dollars, yet do not invest the effort in truly understanding their customer. Because of this, they set up themselves and their startups for failure.


Since failure isn't the first goal of a founder, here are five reasons your startup might fail to connect with brand managers -- and how you can avoid these pitfalls.

You just think of brands as dollars signs


 The relationship between brands and startups could use some improvement. As Shiv Singh of PepsiCo wrote, "For too long, the digital industry has looked at brands like Pepsi simply as a monetization strategy. What's worse is that sometimes our digital friends view us as being uninformed members of the digital ecosystem -- something akin to prey."



Startups tend to think of brands as a necessary evil. Many of the founders say they "hate" advertising. But when their investors push them on needing to actually make money, suddenly brands become their best friends. Brands can't just be seen as dollars signs that will help make your startup successful.


The fix: Position brand marketers as partners. In the earliest days of your startup, spend time with these potential partners and learn about their pain points. What keeps them up at night? What frustrates them within the industry? These insights will be incredibly valuable as you build out your product.


This early time should not be used for selling, but for understanding. The easiest sale you will ever make is when you meet with that brand manager and can say, "Remember when you told me that X was a problem for you? Well, we have created Y that solves exactly that problem." Talking with brands early on can also help you come up with your native monetization that creates a solution that is compelling to consumers and brands alike.

You have a coastal bias


What do you think of when you hear Cincinnati, Minneapolis, Bentonville, Detroit, or Battle Creek? Are those cities simply part of "flyover country" to you? Consider instead that those towns are home to the world's largest advertisers including Procter & Gamble and Kroger (Cincinnati), General Mills and Target (Minneapolis), Walmart (Bentonville), Ford and General Motors (Detroit), and Kellogg's (Battle Creek).



If your startup is targeting those companies in your sales pipeline, you need to shed your coastal bias and shed it fast. By coastal bias, I mean the tendency of some people to question why those of us in the heartland would ever want to live here instead of San Francisco or New York. I have seen numerous startups lose a sale before they even got to their pitch because they made some bone-headed joke about the town a brand manager calls home.


The fix: Embrace the towns that are home to your biggest customers. At minimum, get on a plane and spend time in those towns. And by spend time, I don't mean fly in for a sales meeting, buy a steak dinner, and then head back to your hotel. Get out into the community and support the meetups and other groups in a town. The out-of-town mentors and supporters of The Brandery will testify to the connections that can come out of such involvement. And if you really want to take it a step further, think about even hiring people in those towns. It's a strategy that has worked exceptionally well in Cincinnati for companies like Twitter, Vitrue, and others.

You are making their job harder, not easier


A day in the life of a brand manager is crammed with meeting after meeting. A typical brand manager spends his or her day bouncing between various stakeholders in the business, from management to agencies to key customers. When startups come along asking brand managers to organize an hour-long meeting with their teams or other brand managers, you aren't making their jobs easier. And you aren't making their jobs easier when you provide a solution that requires them to get customer buy-in, alignment from the supply chain, and 10 other things before it can be implemented.



The fix: It would be hard to find something more valuable than time to typical brand managers. As such, you should work to find ways to make it as simple as possible for them to engage with you and your startup. In your first meeting, don't ask for an hour -- start with 30 minutes. Offer to pick the brand manager up a cup of coffee for the meeting and be sure to ask how he or she likes it. Don't spend the entire meeting rushing through a deck trying to get out every last bit of information about your company. Make it 30 minutes that the brand manager enjoys, and you'll be surprised how much easier it is to get that next meeting.


Along with this, think about how you can work with a brand's agencies as well. They are key influencers, and you don't want to make their jobs harder (or cut them out of the process).

You have a different definition of speed


While time is obviously valuable for brand managers, startups put a different value on it. For most startups, they are working against a clock that will one day expire. They have a burn rate, and they are working as fast as possible to keep that burn rate from making their bank accounts hit zero. Because of this sense of urgency, startups push hard to get their meetings scheduled, and they are following up the very next day asking when a brand will have a decision.



Just the other day, I had a startup ask if I could pull together a pilot with one of my clients in 48 hours. To put this in perspective, I'm lucky if I can get a meeting scheduled with a client in 48 hours, much less get a test signed off. Brands, on the other hand, are generally working against yearly planning calendars and aligning their holistic marketing plans to match when their retailers change their merchandising shelf sets. They are planning for six to 18 months down the road, not to execute a program next week or even next month.


The fix: There isn't an easy fix for this obvious conflict of speed. However, you can make the best of it. First, ignore the advice to only approach brands during marketing planning season because they are making decisions then. Frankly, it is too late at that point. Educate them throughout the year so you'll be top of mind when they are planning. Likewise, while the big dollars are allocated during planning, more brands are holding back opportunistic dollars to use throughout the year.


In addition, respect brands' timing and don't ask for unreasonable deadlines. You will just get a fast "no" if you do that. Finally, keep in mind that the speed of brand decision making is also somewhat intentional since you are talking about billion-dollar brands. One of my earliest managers summed it up best by saying that "big brands have safety barriers built in to keep you from hitting the wall at 100 mph." (Based on the latest from J.P. Morgan, I wish the same could be said for our big banks!)

You don't understand their organization


When startups are raising money from venture capitalists, they hear a lot about the difference between partners and associates. Essentially, it is a difference between those with authority (i.e., the ones who write the checks) and influence (i.e., those who can shape the view of check writers).



The same holds true in the world of brand marketing, with even more layers (assistant brand managers, brand managers, marketing directors, and so forth). Many startups try to go straight to the top when approaching brands. They look for introductions to marketing directors, vice presidents, or even CMOs of companies. What they don't realize is that this is actually making their jobs more time consuming. A marketing director at a major CPG company like Unilever or P&G often runs an entire category with multiple brands. While such people have approval of the ultimate marketing budgets, they generally aren't micromanaging the individual budget line items. That authority typically belongs to the individual brand managers who are running the day-to-day businesses.


The fix: Use your introductions wisely to get to the right person on a brand. Investors love to introduce their portfolio companies to potential clients (especially ones with fancy titles). They will call you up and say, "I met the CMO from Big Brand, and he loves what you are building. You need to meet with him!" Often times, that will lead to a simple meet and greet where you are passed off to a series of people within the company. You might eventually end up on the right desk, but you are likely to have spent a lot of energy getting there.


On the flip side, don't forget to spend time with those who have influence on a brand. Often times, assistant brand managers can be a significant influence in getting your startup a deal with a brand. This is especially true in digital where many brand managers turn to their assistant brand managers to lead the digital marketing line item while they focus on the TV ads.


Brand marketers can be amazing partners for startups, especially if you avoid these five routes to failure. It helps to keep in mind the words of Tim Westergren, founder of Pandora: "Just be prepared for a long and often uncertain journey. The good stuff doesn't come easy." 


Dave Knox is CMO of Rockfish Interactive.


On Twitter? Follow iMedia Connection at @iMediaTweet.



"Business man with stock market disaster" image via Shutterstock.

Dave Knox is CMO for Rockfish, one of the fastest growing digital agencies in the country. Prior to his role at Rockfish, Knox was a seven-year veteran of Procter & Gamble, where he was instrumental in the digital turnaround that led to P&G...

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Comments

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Commenter: Ashley Feucht

2012, July 16

So true! Another tip: Figure out what works and what doesn't. Your startup's digital media (website, ad campaigns, social media, email newsletters, etc) should all be tagged with a web analytics platform, like Google Analytics. If you can't measure how your audience is interacting with your brand, you won't be able to pinpoint what contributed to a success or failure. MaassMedia, LLC has an expert staff that helps organizations find transformative insights from their data, and we're always looking for new clients.