More Young Companies Go It Alone, Effective Marketing Is the Secret Sauce
By Tim Johnson
Trends in Venture Capital (VC) funding are one factor driving young companies to focus on building long-term successful businesses versus the “quick ramp and sell” force fed by VCs. This article, written by Mark Suster, analyzes trends in Seed, Series A and B funding over the past 15 years. Ironically, Mark was a serial entrepreneur who is now a VC himself.
At first glance, it would seem VC funding trends should be drawing startups to the VC community like a magnet. Startup funding rose from $29 billion in 2006 to $131 billion in 2018, a 12.3% compound annual growth rate (CAGR). However, the majority of this funding has gone to mega-rounds of $100 million and more. In 2013, these enormous rounds comprised 13% of all funding, and in 2018, they accounted for 47%.
If you take a deeper dive, the picture becomes more clear. Seed funding jumped in the 2006 to 2014 timeframe; deals under $1 million grew by more than 600%, while deals in the $1-5 million range increased by more than 300%. By 2015, it became clear this torrid pace of growth was unsustainable. From 2016 – 2018, total deals under $5 million shrunk by more than 15%, a typical market correction.
However, while a boom took place in Seed investing, a similar boom did not occur in Series A and B funding. The number of deals in the $5-10 million and $10-25 million range increased at just 4% and 5%, respectively, in the 2006 – 2018 timeframe. The result has been an increasing number of companies that land Seed financing, but are unable to secure Series A. These companies either bootstrap or go under.
Bootstrapping results in a much slower ramp, but typically a more sustainable one. Young companies can launch products and build market penetration at a rate they can support, protecting the brand. Management avoids the distraction of constantly searching for the next funding round. And, they can make decisions driven by the organization’s short- and long-term needs versus meeting the outsized growth targets VCs often demand.
Creating a sustainable business requires mastering a different set of disciplines. These include building out high-performing sales, marketing, human resources, accounting/finance and operations teams.
Marketing is an especially important critical success factor. The effectiveness of creating the optimal positioning versus competitors, anticipating the future market direction, executing web, media, direct, event and social campaigns that fill top of funnel as well as push leads through bottom of funnel will make or break young companies. And, remember, the impact of the marketing program is only as strong as the weakest component. If you earn great media coverage but fail to promote it on social media, the “shelf life” of that coverage is very brief. If you build a gorgeous website but don’t continuously work on SEO or build campaigns that drive prospects to it, it’s mostly a waste of time. You get the picture.
One element that startups often forget is the importance of integrating these campaigns into a coherent “whole.” When announcing a new product/service, optimizing the coordination of pushing out the press release, building the website content, pulling the trigger on social and direct campaigns and more can be the difference between a successful versus unsuccessful roll out.
Most startups can execute on at least some marketing activities in house, but typically not all of them. When using in-house resources for some activities and outside resources for others, it’s important to determine who is going to manage this integration and coordination. Oftentimes, the best choice is to outsource the management function, since it’s the primary focus of the agency and just one of many hats an internal CMO is wearing.
UPRAISE has helped countless young companies as well as more established companies on steep growth trajectories build their marketing teams, divide responses between internal and external teams and optimize coordination of their marketing programs. If you’d like a new look at how your company organizes its marketing program, let’s talk!