Peter Connor

Approaching your budget - Marketing VS Product For Startups

Sooner or later every startup founder is confronted with a choice: how much of my resources do I devote to developing my product and how much do I devote to marketing it? We had a look at what the experts think. Before we get down to the brass tacks, here's how you should approach your budget.

product development vs marketingDon’t neglect the product

The startup community is abuzz these days with the importance of streamlining your product and company “to build the thing customers want and will pay for as quickly as possible”, as described in The Lean Startup Methodology. This can’t come at the expense of product quality, and as startup guru Dharmesh Shah explains, cutting back on features is a good way to lose customers you never had. If you don’t feel your product has what it takes to go head to head with competitors and disrupt the current marketplace then you’ve obviously skimped on development. Do you want to be the next Facebook or the next Bebo, the next Google or the next Alta Vista?

Don’t ignore marketing On the other hand, it’s easy these days to get complacent about how your startup is going to reach potential customers. “Nowadays startups can rely on social-media and viral marketing, if my product is good enough I’ll be able to market it for free. Right?” Wrong. Viral marketing will cost you nowadays, and in most cases your competitors will already be pursuing these channels. Paid advertising has fallen out of fashion in startup circles recently, but while good inbound marketing is a necessary starting point, sooner or later you’re going to have to bite the bullet and start spending money. As a wise man once said: “Doing business without advertising is like winking at a girl in the dark. You know what you are doing, but nobody else does.” With this in mind, we’ll now look at the ins-and-outs of how to make this decision. Your marketing budget will evolve with your expansion, so below we’ve outlined the two phases of planning you’ll have to undertake.

 

The Bootstrap Phase:

During this phase you’re still focussing on product and business development, and you still have a meagre budget. To this end you don’t need a marketing budget. Fred Wilson says it best: “Early in a startup, product decisions should be hunch driven. Later on, product decisions should be data driven” Your bootstrap phase masterplan will involve the three following steps:

1. Analyse With whatever stats you have to work with, conduct an initial market analysis. You’re trying to put rough numbers to your target market (to avoid the large market fallacy), looking for initial figures on size, wealth and competition.

2. Target Settle on an objective for this phase: “Success is different for every startup. Maybe success is 500 new signups per month for Startup A while Startup B thinks success is $50,000 in revenue per month. Whatever your idea of success may be, define it early.” This prevents indulgence in vanity metrics and shifting of the goalposts.

3. Budget Given your tiny budget at this point, assessing your resource allocation in terms of workhours (rather than cash) is more appropriate. A good target to shoot for is about 20% of you time being spent on marketing your startup. So… budget roughly 20% of your time on the following free sources of promotion and research: Social media: It goes without saying that this should be your first port of call. A well executed blog, Twitter and Facebook will be your best means of promotion. Free PR: You don’t have the money yet for professional PR, but now is a good time to build relationships with media. Testing and feedback: There are plenty of ultra-cheap analytic toolsthat you can use to get an idea of how your bootstrap marketing has been going.

 

The Spending Phase

By the time you have a real budget you’ll need to decide how much to spend on marketing. The recipe for developing your spending phase masterplan will go a little somethin’ like this: 

1. AssessThe marketing activities you conducted during the bootstrap phase should give you an idea of the financial needs of your company, rough figures on customer acquisition costs, and a solid online presence. Quantify these. Put simply:

  • What marketing presence do we have to work with?
  • How much revenue growth do we need to stay financially viable?
  • What ROI can we expect from our marketing activities?

2. Explore options Figure out how to drive up the ROI we just mentioned. To begin with, settle on a few strategic channels and don’t spread yourself too thin.This is echoed by Renee Warren, who breaks down your marketing spending into the following categories:

  • Social media: You should already have a foothold here, assess whether paid advertising through this channel would be beneficial.
  • PR: You may or may not need to hire a full-time PR firm, but essentials (such as a good press-kit) and occasional consultancy will cost money.
  • Content creation: When it comes to the likes of guest-blogging and video, you get what you pay for.
  • Testing and Iteration: There is much to choose from, and the right analytics and research tools are worth their weight in gold.

3. Budget With your needs and options in mind, go back to your budget. How much should you put aside for marketing? There’s no one-size-fits-all answer here, you should spend as much as you can afford. “The most common percentage for small businesses (usually below $5 million) is 8%. Every business is unique, so scale it up or down as you see fit.”We would say this number is a little outdated, and upwards of 15% is closer to the norm.

The Bottom Line

Marketing budgets vary hugely from one business to the next, but making structured decisions gives you the best shot at getting it right.


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Peter Connor Bullet HQ Peter Connor
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Having spent a number of years studying media and visual related courses I moved into Internet/Infrastructure based technology Read Peter's full bio

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