With Growth, Don’t Forget About the Long Term

Growth is an area for startups that is traditionally aggressively short-term focused. Development cycles are quick, results are measured in experiments as soon as things go out, and we react to all this data. Because of the nature of most startups, most marketing or growth tactics focus on acquisition as well. Getting more people in the door is almost every startup’s biggest issue.

This creates some challenges to doing long-term effective growth. I’ll highlight a few examples I’ve run into, and one tip on evaluating the more nuanced balance between short and long term growth.

At GrubHub, we added a feature for someone to sign up as a guest and order very early on as a company. The reasoning for this was simple. The easier we made it for someone to check out (or the easier it was perceived), the more likely an order would be completed and we’d make money. People visiting GrubHub are hungry, and hunger and patience don’t typically co-exist well.

Way off into the future, we started noticing our one month repeat purchase rate for new diners started to sink below our previous year’s levels. This had never happened before. We’d also continued to growth our repeat purchase rates year over year. Obviously, we were bringing in more new diners, so we thought it could be a natural decline in quality as you target less early adopters and a bigger base. So, the first thing we looked at was our repeat purchase rates by referral source. Most of our referral sources were down, so it wasn’t one new channel that was causing this.

Then, we cut the data by guest vs. Facebook vs. account creations. Over half of our new diners joined as guests. When looking at the data this way, it was clear that guest repeat purchase rate was declining rapidly, but the other types of accounts were doing well with driving repeat purchasers. So, we faced a decision. Do we remove the ability to order as a guest and potentially lose half of our new diners?

We decided to test redesigning the signup page, amplifying the value of creating an account, and hiding the guest option at the very bottom with a link that said “I don’t like convenience. Sign me in as a guest.” We monitored overall conversion rate, and repeat purchase rate. What we found is that conversion rate did not decrease and the types of diners that were creating guest accounts historically began creating real accounts. What we also found is that our repeat purchase rate went back up. Something about selling the value of GrubHub as a service and not just a one time transaction made these people stick around. This was the first time we learned that something we did to make it harder to acquire a new customer could actually beneficial for our business over the long term.

We had a similar issue on the paid marketing side once at GrubHub. It might sound silly now, but group buying sites were all the rage as distribution channels a few years ago. The organization really wanted to try it as a way to boost demand in emerging markets for us. We had never really discounted our product before, so there were some serious concerns as to the long term effect of that, but we tried it anyway.

We gave $10 off $20 worth of food at any restaurant, and we got a ton of new customers. Those that used the coupons the first week also became great customers of GrubHub. Our one month repeat purchase rate for them was great. The company quickly wanted to scale the program to other cities. But I had recently instituted a new way to track any marketing initiative. The process was to track every initiative after one week, one month, and six months. Our one week and one month data was great, but when we did our six month look back on these sites, the data changed. What happened was that the people that used the coupon immediately were still good customers, but the many people who waited until the coupon was expiring to use it were not. They never returned. So, the overall program had a poor LTV that did not justify the acquisition costs.

I highlight these two examples to point out that it’s easy to sacrifice the long term growth of a startup with short term measurement and initiatives. Don’t be fooled. Measure everything you’re doing on short and long term effects, and think about the long term impact of something you might implement to shoot up short term numbers. Don’t let acquisition zeal ruin your retention. The one week, one month, six month rule is a great way to prevent short term growth decisions from taking you down a negative path. Find out what those cycles are for your business, and be diligent about measuring them for any acquisition channel you try.

Movie Marketing Exercise: Nightfall

About a year ago, I was asked to respond to a marketing movie challenge. I had fun doing it, so I thought I would share what I did.

The Challenge: It’s 2016. The average film costs $50 million to market, and that cost is passed onto theaters in licensing fees. You run a film distribution startup that needs to make a film successful by spending only $500K in marketing. Build a marketing/project plan to show how you would do it. Assume that your startup has already secured some contacts at major theater chains and just needs to get them excited about a film’s prospects to get them to lease the ability to show it at their theater(s).

Exposition: Movie distribution is always going to be a hits-based business, and whether you’re spending $500K or $50 million, if a movie doesn’t appeal to its target audience, it will not be successful. So, a considerable amount of time needs to be spent evaluating films for distribution that we think we can create hits out of. Now, just because a film is good does not mean it will be a hit. Any top 100 films list is littered with films that largely went unnoticed or unappreciated at the box office. So, this new company needs to have expertise in both access and ability to pick quality projects capable of being “hits”, and a marketing approach that can create these hits at a fraction of the cost of the Hollywood machine.

Since film selection is such a key component for success, I had a hard time defining a campaign without defining a specific film the campaign would be for. You would market a comedy much different from a romantic comedy or a thriller. So, I created a fake project.

The Project: Casey Accidental Films has secured the distribution rights for Nightfall, an adaptation of the Isaac Asimov short story. Nightfall is a story about a civilization on a planet relatively similar to Earth, except that it is in constant sunlight do to a rotation of six suns. At a similar time, archaeologists as well as astronomers and religious scholars discover every two thousand years, there is a period of night. Seeing as how their civilization is only around two thousand years old, they have no idea what to expect, and, based on psychological studies as well as pre-historic texts, they begin to predict that darkness will cause total chaos. What they do not understand though is that it is not the darkness that will cause chaos; it is the discovery of millions of stars that show how their world is just a small speck in a vast universe. That realization is overwhelming to a people who have only known one planet and six suns their whole life.

CA is excited about Nightfall for a few reasons. First, since it is based on an award-winning novel, it should have a somewhat built-in audience of literary junkies who want to see how it is adapted. Second, it is in the sci-fi genre, which is riding high after the success of Star Wars VII last year. Third, it seems a prime candidate to create both an interesting viral awareness campaign and an immersive film experience, which CA expects to be the core elements of their marketing strategy for all of their films.

Campaign Themes: With only $500K to work with, Nightfall will not be buttressed by an aggressive TV and billboard campaign like most other movies. One thing that movie marketers do well is they maximize anticipation utility, a concept that states that consumers do not just gain value/happiness from the consumption of a product, but from the anticipation of that consumption as well. So, this is a part of the film marketing mix we want to adopt instead of re-invent.

To make up for the fact that we will leverage another key concept from economics and psychology: scarcity. Scarcity increases the value of an object/experience according to economics, but what’s more important for our purposes is that scarcity makes something remarkable, a key component to get people to, well, make a remark about something. To be successful in marketing a film, we have to optimize for remarkability. To do this, we will design an experience created by few, but remarked upon by many.

This process will have to be customized for each film. For a comedy, it might be about creating full-fledged profiles to interact with for all the major characters on all the major social networks to create comedic experiences outside the film, or crowd-sourcing jokes for the film. For a science-fiction film, we want to optimize for themes in our campaigns that match the film. In this particular case, mystery and intrigue is what we want to deliver.

Leveraging the mystery of the story, we would hope to gradually reveal all aspects of the film to the potential audience: the name, the release date, the theme, the special experiences attached to the film. This process should expand anticipation utility, and get many moviegoers invested in the film before they even see it. A great film can create evangelists after the film by the film being so good people recommend it. We also want to create evangelists before the film to get more people to see it in the first couple of weeks as movies typically make most of their revenue in the first few weeks. To do this, we need to get fans involved.

The first thing we need to get fans involved is a series of hooks that intrigue them to research the film further. Most films do this by just posting video teasers and trailers before other films or as commercials on television. Without a budget to grease the palms at major theaters to show Nightfall as a trailer before other films or a commercial TV budget, we may only get trailers spots for some theaters that are about to show the film in a few weeks, limiting the anticipation utility we can create. So, we need to get evangelists to show their friends the teasers and trailers by sharing them with their friends on social networks like Facebook and Twitter. To attract evangelists, we need to do something intriguing they’ve never experienced before.

Once we have attracted evangelists, we will need to keep the story going for them by gradually revealing more information. This information makes sure the anticipation does not subside as well as gives them more information to share with their friends as well as discuss with others online. While we do not want to create any experiences that facilitate discussion as that would make the campaign less mysterious, a critical factor in the success of our campaign will be these discussions occurring elsewhere online, like in science fiction/film forums, on social networks, and in the press. The idea is to create variable rewards by always revealing new elements of the campaign in different ways so our evangelists do not get used to them and become less excited by them.

We cannot expect just an advancement of the mystery to be sufficient though. Our viral campaign needs to also create a level of status for people to who are the most engaged, both in their ability to share the clues as well as an ultimate reward at the end. This reward needs to be a unique experience worthy of the effort to drive tons of word of mouth and email sign-ups to our website.

For the actual release of the film, we do not want the movie-going experience to be similar to others as well. We want it to both unique, a viral driver in and of itself, and, ultimately remarkable. So, we will try to work directly with theaters to create a unique vision. This is a vision that will customize the theater for the climax of the film and allow moviegoers to use their cell phones, tablets, and wearable technology during the film as an enhancement to the experience. In almost every industry that has been fairly static for the last 30 years, there is a strong push to reject all the available technology that helps us in the rest of our daily lives. Classrooms disallow cell phones and tablets that could facilitate learning. Movie theaters ask people to turn off their cell phones before the movie. It could be a great social experiment to try the opposite and could create a ton of viral buzz in the process. We will also give as many people as possible during opening weekend a treat when they leave the film, thus hopefully invoking the peak-end rule whereby people largely just experiences by the peak, which will be where the customizable theater comes into play, and the end, where the treat is given.

Launch Phase (T-minus 180 – T-minus 167)
Our main option for a hook that starts the campaign is to re-create “nightfall” at public events. A few moments of darkness in a crowded area followed by a cryptic message is a remarkable occurrence that should drive people to tweet, share, snap a photo, etc., even if the message is not yet one of excitement, but of confusion. Ideally, we could create such an occurrence at a major league baseball game of the LA Dodgers. The plan would be to shut the lights off at the entire stadium except for concessions for about ten seconds, then use the big screen to display a cryptic teaser message for the film. LA is the best place to start a campaign like this because it is where most of the movie press is, and we need them to organically discover and unravel the mystery of the film in the same way as our evangelists so their larger audiences can also become attracted to the film.

We want all of these cryptic experiences to drive people to social networks so the viral drivers of the message are always right beside the message. With Dodger Stadium, the message on the scoreboard would not advertise the film. It will be a first clue in a mystery to discover that there is a film coming soon that these people need to see.

Ad copy on scoreboard:
Beware the stars.
#nightfalliscoming
[Clock countdown that runs extremely fast so viewers are not able to see when the clock started]

The hashtag is the clue to go to Twitter to find out more information, and we hope we can drive thousands of Twitter searches from this message. The LA Dodgers have the highest average game attendance in the MLB at just over 43,000. 1,000 social media comments about this would be a little over a 2% conversion rate, which may be a little optimistic, but is not impossible.

If people search on Twitter for #nightfalliscoming, they will see a sponsored tweet about the search results from a new account called @bewarethestars that reads, “Nightfall is coming. Find sanctuary here http://bewarethestars.com.”

The landing page at bewarethestars.com will be completely black except for one sentence in white:
Website copy:
Beware the stars. Enter your email address here to learn more about how to find sanctuary.
Email address: ______________________

If users sign up, they will see a message that states:
Thank for heeding our warning. Use this link to warn others. Those who warn the most people will be the first to find sanctuary. Not everyone can be saved! [Promotional URL]

Underneath this is a progress bar that shows how many people they have warned who have heeded their warning. The milestones are scrambled in an ancient text that is unreadable though. This is consistent with the film where ancient texts warned of the impending nightfall, but they were in a language the scientists could not translate. These promotional links link back to the same URL bewarethestars.com with some tracking code at the end to keep counts of how many successful referrals these early evangelists who signed up will drive, developing some link equity. Our goal is to rank #1 for the terms “beware the stars”, “nightfall” and “nightfall is coming”, which will be our main promotional messages, within two weeks because as of this moment we have no Google presence at all. That is okay for this time, as we want Googling about this mysterious message at Dodger Stadium not to reveal much.

During this time, we will also post our first Instagram post, which is a picture of one of the scoreboards, and our first Vine, which is a video of one of the scoreboards. We also will create our Facebook page which has a cover of the scoreboard and the darkness around it. We will pay for sponsored grams, Instagram’s new native ad product, and sponsored Vines, Vine’s new native ad product. These ads are just images and video of one of the scoreboards at the stadium. Our estimated spend here is less than $5,000 and targeted to the LA area for one day, but we could spend more if we like what kind of engagement we are getting. The Twitter sponsored search will remain live through the release date of the film, as much of our promotional material will only mention the hashtag.

At this point, we will have executed four ad expenditures: Dodger Stadium nightfall re-creation, Twitter Sponsored Search, Sponsored Gram, and Sponsored Vine. We hope these tactics generate considerable organic social media activity and press. If these tactics together do not generate 1,000 email sign-ups, we may have to revise our strategy. Fortunately, we can track sign-ups by Twitter, Instagram, and Vine to see which methods, if any are driving sign-ups. Another important thing to measure at this point is sentiment. Our hope is that people find these cryptic messages intriguing, but if the sentiment implies they are annoying, we will have to scramble to create a different style of campaign. Twitter searches and RSS alerts for our keywords plus Dodgers should provide enough information to understand sentiment without having to pay for expensive tools like Radian6.

Film Experience Setup and Key Partnerships Phase (T-minus 180 – T-minus 134)
Everything about this film will try to create a unique experience people won’t forget and will talk about to others. In order to deliver on that, we need help to nail the actual movie viewing experience. Our two tactics will revolve around working closely will theaters carrying the film and student organizations to create a unique viewing experience for the climax of the film, and working with online ticketers to upsell viewers on a truly immersive experience, which requires us knowing their email address and viewing time for the film.

T-minus 180 – T-minus 150
The key scene of the film is the eclipse and the subsequent emergence of the stars. We want to re-create that type of experience in the theater as much as possible, and get theaters excited about having that added feature and ultimately wanting to show the film. We start talking to colleges that have courses in film set design, and offer them an opportunity to for a special project that is once in a lifetime. Students will have a chance to create a special installation for a major film. The reason we use students is because they will trade the opportunity for money, and our budget would not allow us to pay professionals. Students submit their portfolios, and then we work with various students groups across the country to come up with a design that fits the ceiling of a typical movie theater room that replicates the sudden appearance of millions of stars. Students will be listed in the credits for the film for doing this as well as be able to say they had an internship at a film distributor. Students are sworn to secrecy about this project, but we know they will leak what they are doing to their friends, and that is fine. We like that things that seem like secrets leak to people who are likely to see the film. Depending on how light we can get the costs for the installations and how many students across the country interested in set design we can get interested, we will try to install this in as many of the major theater locations showing this film as possible.

T-minus 140
The first goal is just to install it in a theater where movie theater reps can see it. We work with one student group winner, and get one theater built out in this fashion, and shows it to theater reps. Fortunately, they like the film and the experience. With the film experience and the marketing plan we lay out for the theaters, we lease lots of copies of the film, but have two requests for them: that we have the ability to augment the theater showing the film so that it has a special ceiling we develop ourselves, and that they ask patrons to keep their phones/iWatches/Google Glass ON instead of turning them off. Theaters, desperate to create some sort of excitement that will drive people to the theaters, and their theater specifically over others, agree, but we know we likely lose some theaters with these requests.

T-minus 134
Fortunately, by 2016, online booking of theater tickets is how the majority of movie tickets are bought, and we partner with the major online ticketers like Fandango, MovieTickets.com, and Moviefone to email the purchasers of tickets with their receipt an invitation to make the film an immersive experience by asking for their email address. This one is likely costly, around $50K. We expect the conversion rate to be small, but with this group as well as the group we expect to be on our email list, plenty of people will receive the experience, and those who don’t might want to see it again being opted in to that type of experience.

Story Advancement Phase (T-minus 166 – T-minus 86)
After the launch phase, story advancement phase introduces new marketing tactics as well as amplification of the successful tactics from the launch phase of our campaign. Phase 1 tactics include more stadium blackouts and more sponsored social media posts. New tactics includes additional social channels, email marketing to the sign-ups from phase 1, SEM, online display, and content marketing for social media and SEO. While we do not necessarily need all of these channels to drive awareness and interest for the film, we want our audience to never be sure where and when information will be revealed about the film.

T-minus 166 – T-plus 28
Our next phase of social will leverage the rise of ephemeral and random photo sharing to drive additional cryptic messages about the film, and will expand our geography to the entire U.S. The first destination is SnapChat. Creating organic content for SnapChat will not be very useful as we will not be trying to develop relationships on this channel. What we will is a native ad platform on SnapChat call a Sponsored Snaps (note: this doesn’t exist yet, but something like it will by the time of this case) where we can target users based on demographic information to show them a message for ten seconds before it disappears. Savvy SnapChat users who are interested can save screenshots and try to interpret the messages. The messages will just be random words related to the film. There will be dozens: Nineteenth Theptar, Apostles of Flame, six different suns, the name of the newspaper in the story, etc. We will also use random photo sharing app Rando to target random U.S. users to send the same random photos.

T-minus 159 – T-plus 152
Our email marketing campaigns begins shortly after the second phase of our social media advertising. Depending on how many people signed up, the top 5%-20% of referrers to the site will receive an email with a link to the teaser hosted on bewarethestars.com (and, a week later, everyone else on our list). The teaser is only six seconds long, and shows grainy video of a red star being covered by a black moon, slowly creating an eclipse, similar to the video here. The clip ends with the title of the film, the hashtag, the website URL and the date “Nineteenth Theptar”, which is the fictional date in the book for the nightfall. Underneath the trailer is the same progress bar with the first message decoded that says “teaser”. The other milestones are still in an unreadable, ancient text. This shows the evangelists that they unlocked something special for their participation. These people will be given another promotional URL to share the teaser URL. If someone arrives at this page, but has not given their email address, they will need to give it to see the teaser.

T-minus 155 – T-minus 134
We take that same teaser and upload it to Vine, Cinemagram, YouTube etc. and pay for some sponsored posts. We also post it to our Twitter and Facebook pages so any followers can see it, but we really don’t expect to have many Facebook fans at this point. We also start buying AdWords for the same keywords we are targeting with a “media ad” that plays the teaser. Again, the cost here should be in the low thousands. We will also start buying full page takeovers on random websites where the screen goes pitch black for a few seconds, and then our message is revealed.

T-minus 120
Our next iteration of email marketing will be to reveal more of what the progress bar is actually tracking progress for. The next milestone will be release date, and will be personalized to how far away each user from having enough sign-ups to have that date revealed to them. Those evangelists that have already gotten that many users to sign up will see the release date in the email, and see the next milestone as “trailer”.

T-minus 100 – T-minus 86
Our most active evangelists will receive a new email with the trailer once they reach the next milestone, and anyone they share that URL with will have to sign-up at that URL before they can see it. Over the next two weeks, we will email everyone else on our list the trailer, and will replace our media ad on Google Adwords with the trailer, as well as post the trailer on our Facebook, Twitter, Vine, Cinemagram, Instagram, YouTube, etc. pages.

T-minus 85 – T-minus 0
Our next personalized email send will include a progress bar fully translated, and the end of the progress bar appearing to be a trip to the premiere. We will send progress bar updates every couple of weeks to evangelists to show how they are doing in their goals to win a trip to the premiere.

T-minus 70 – T-minus 0
Our next phase of the campaign will focus on content marketing to flesh out anticipation for the story. We create pages of content for specific pieces of the film on our websites. These content pages will start on very generic topics like the planet, some of the main characters, then go into more detailed elements like the suns, and minute story details. These topics correlate exactly to the random phrases we started advertising on SnapChat and Rando, so as more people start to see those sponsored pictures, we expect Google searches for these terms to rise, and for our pages to show up organically for them. The pages will have a mix of text describing the topic as well as video or images depending on the topic. We will use email, Twitter, and Facebook to drive traffic to these pages and people keep engaged on these channels. We will still not respond to any comments on Twitter and Facebook so as not to make the campaign less mysterious.

Sample Editorial Calendar:
T-minus 70: Lagash/Kalgash (the planet in the story)
T-minus 65: Nineteenth Theptar (the date of Nightfall and the release date of the film)
T-minus 60: The Tunnel of Mystery
T-minus 55: The Theory of Universal Gravitation
T-minus 50: The Apostles of Flame
T-minus 45: Thombo tablets
T-minus 40: Onos (main sun)
T-minus 35: Dovim (eclipsed sun)
T-minus 30: Trey and Patru (sun pair #1)
T-minus 25: Tano and Sitha (sun pair #2)
T-minus 20: Beenay (main character)
T-minus 15: Sheerin (main character)
T-minus 10: Siferra (main character)
T-minus 5: Theremon (main character)

Purchase Intent Phase (T-minus 21 – T-plus 28)
Most people don’t purchase movie tickets very far in advance, if at all, so we need to push hard in this area to make it an experience you want to plan for. For those that we already have their email, we will email them about the immersive experience, an interactive viewing of the film unlike anything they have ever experienced. This email will have a call to action to book now, which they will be able to do on our website. We will also have an option to tell us when they are seeing the film so that we know when to trigger the immersive experience. Those that purchase on Fandango, Movietickets.com, or Moviefone will receive an email from that ticket provider about the immersive experience and how to sign up. For those that check-in on foursquare or Facebook, we will leverage their post check-in ads (this ad is coming out soon for foursquare. I assume Facebook will follow) to ask them to sign up so they can get the immersive experience. This will cost us a few thousand dollars on a CPA model.

Film Viewing Phase (T-minus 7 – T-plus 28)
This is the time where we pay our most successful evangelists with a night they will never forget, and when we deliver a truly unique in-theater experience for our film amplified by the in-theater build-out and use of the devices most people carry with them to a film.

T-minus 7
For our premiere, we will invite our most viral drivers of email sign-ups as well as some reviewers and the cast and crew. The premiere will be held in one of the few “dark sky” parks in the world. These parks are some of the darkest places on land, and have fantastic views of the stars. There are two in the U.S.: Natural Bridges, Utah and Cherry Springs State Park, Pennsylvania. We pick Utah because we may be able to attract a couple reviewers from LA. The premiere will not need the illusion of stars above, as Natural Bridges will have the clearest view of the stars in the U.S. We will develop an enclosed theater where bright lights hide the real-life stars until the eclipse scene. We will invite ~50 of the most viral email sign-ups at an average cost of $500 a flight at an average cost of $100 for accommodations, which will be a ~$30,000 spend. The theater build out for one night will cost about the same. This is an event that, while few people were invited to witness, many will hear about through word of mouth and press.

T-minus 0 – T-plus 28
For the release date and beyond, if someone has signed up for the immersive experience, they will receive emails or push notifications (if we have them tied to an app like Facebook or foursquare) so they get emails from the characters in the film, copies of the ancient texts, gossip from characters not heard in the film. These would all be triggered sends from an advanced ESP like ExactTarget where emails would trigger off a start time for the film. The CPM’s on email are fairly cheap, so if we sent 10 million emails, it should only cost us something less than $20K. Viewers will be encouraged to take pictures and share them via timely messages as well to drive more social buzz.

For the premiere and opening weekend, after the film is over, we will try to do one last thing to make sure viewers leave with a positive impression. Social comments can kill or drive a film’s success in a few hours to a day. We want to make sure we don’t receive ANY negative tweets or status updates about the film and many positive ones. So, for the first weekend, when viewers leave the theater, we will offer them cherry lollipops almost completely covered in chocolate, simulating the eclipse of the red sun in the film. Thus, we will try our best to use the peak end rule to our advantage: an in-theater special display for the appearance of the stars as the peak, and the chocolate covered sucker at the end. Our hope is the quality of the film and the uniqueness of the experience drive significant social activity and positive reviews.

We can also email all of the people we received emails from who we know saw the film and ask them to review the film on their favorite social networks, Flixster, IMDb, etc. After a few weeks, we can also ask them to see it again. We can attract them to a second viewing with “Did you notice?” emails. We will continue to email the people who signed up, but haven’t seen the film to try to remind them.

Project Costs:
Social media advertising: $120,000
Includes:
-Twitter sponsored search
-Sponsored Grams
-Sponsored Snaps
-Sponsored Randos
-Sponsored Vines
-foursquare post-check-in ads
-Facebook post-check-in ads
Dodger Stadium Blackout: $10,000
Two other sporting event Blackouts: $30,000
Additional technical development: $15,000
Google Adwords campaign: $35,000
Display Advertising: $10,000
Online Ticketing Partnerships: $50,000
Email Service Provider: $30,000
Total Premiere Costs: $60,000
Post Film Gift for Opening Weekend: $10,000
Set design raw materials: $100,000
Total estimated project costs: $470,000

Staff needed (all permanent members, so not included in per film budget):
Community Manager: this person will make sure all social posts are posted on time and correctly and manage the editorial calendar, with appropriate level of engagement.
Media Buyer: This person will buy all the advertising, coordinating bids on auction-based media like some of the social ads and Google AdWords
Email Marketer: To set up a complex triggered send campaign during the film showings and to send out coordinated lifecycle program before the premiere of the film
Copywriter: To write email, social, and site content
Designer: To design all of the web and social media content
Business Development: To get the tough deals like Dodger Stadium Blackout and Student Set Design Competition to happen
Full Stack Developer: To develop film website and assist with deep integrations into ESP (additional technical development budgeted because this person is probably not a unicorn)

Playing with Sunk Costs

The growth phase of a startup is a unique time in a company’s development for many reasons. There is one particular element that has fascinated me recently that I would like to expose. Those who play poker will be familiar with the phrase being “pot-committed”. This is a time in a poker hand where you have already committed enough of your chips to a hand via previous bets or calls that it’s almost always worth staying with the hand to the end, even if you don’t think you’ll win. The reason is that the chance of spending a little more to win this entire pot is still more attractive than saving what little more you need to bet to stay in a hand and losing everything you have committed (plus the other players’ chips they have committed) and losing for sure.

Why am I talking about poker? Well, startups in their growth phase can create this same sort of scenario, especially if they’ve raised a healthy amount of capital. If a startup, while it is growing and not profitable, implements a strategy that is difficult and requires a lot of resources (either financially or personnel-wise) at this time i.e. a strategy that is likely not a profitable one, when the startup develops into a more mature, profitable business, most of the work has been done on this unprofitable strategy, and the cost to maintain it is much lower. The strategy has a much more likely chance to endure compared to starting the strategy later on when profitability is a concern.

Startups do this all the time with marketing spend, but not near as much with overall business strategy. Say, for example Groupon a few years ago. They bought almost every display and search ad a company can buy during that time. They knew it was unprofitable, but didn’t care because the goal was faster growth at any cost to outrun competitors. What’s an even smarter strategy is committing to an internal process that creates a superior product. Take Airbnb’s practice of sending digital photographers to every listing to get high quality photos. Airbnb knows high quality photos improve conversion rate and create a better product experience. Do they do so enough to make this practice profitable for them? Probably not, but once a photo is taken, it can be used for years as many listings will stay on Airbnb with their same owners. Since Airbnb is in the growth phase of its supply side now, this unprofitable strategy will be easier to maintain once the company already has most of the listings they need, and just needs digital photos of the few new units that come on each month (by the way, the folks at Apartments.com were on this strategy way before Airbnb, but only did it for some clients. Whoops!).

So, I would advise entrepreneurs heading into their growth phase to think about what good habits they can create now that will be unprofitable now, but create a competitive advantage in the future (or a positive externality, as defined in my previous post), when the strategy will also be easier to maintain. If you can generate some very positive sunk costs while no one is looking for you to be in the black, you may be able to create some more serious competitive advantages for your business over the long term.

Planning for Positive Externalities

In the past decade, two trends have picked up steam with the press relating to new business models. The first was “going green”, in that consumers wanted environmentally friendly products and were willing to pay a premium for it. As a result, a new crop of companies catered to this need. The second trend was that of the “sharing economy”, in which younger generations, instead of owning and controlling things like real estate, cars, household tools, etc. were sharing them with others and making some money in the process. This sharing was attributed to more of a yearning for community among younger generations.

These descriptions sound nice, but the reality of the situation is much different. Successful eco-friendly products like the Nest Thermostat and the Toyota Prius and successful sharing startups like Airbnb and Zipcar are actually successful not because of these trends, but in spite of them. Companies that relied on eco-friendliness or community/sharing alone have not thrived. So, what’s the difference between those that are succeeding despite these elements and those that have failed?

The answer is of course more simple than the rhetoric in the press behind these companies. It’s about value. The Nest Thermostat is successful because it saves you money on your electric bill and is easy to use. The fact that it is eco-friendly is a “bonus”. The Toyota Prius saves you money on gas as prices for gas continue to rise. The fact that it doesn’t pollute the air as much is a bonus. Airbnb is cheaper than a hotel for a guest, and a way to earn extra money as rents skyrocket for hosts, many of whom are not making the wages they were five years ago. The fact that you can meet interesting people is a bonus. Zipcar is cheaper than owning a car because you don’t have to worry about maintenance, and you only pay for when you need a car. The fact that it reduces emissions due to people no longer using cars for every travel activity and searching for parking is a bonus. Some may argue that we are more selfish in the way we spend our money on than ever.

These bonuses are what economists call externalities, and they are very important. They are side effects of transactions that have a positive or negative impact on others not even involved in those transactions, and not the reason those transactions took place. This trend of companies becoming successful due to value creation, but creating positive externalities for everyone is a pattern that should not be overlooked. In fact, I would argue it presents a playbook for those that want to change negative elements of our economy. Instead of expecting people to care more about certain causes that will help shape our world so that they donate money or refuse to transact with perpetrators of the opposite of what you want in the world, a better way may be to create something of value that has the side effect of a positive change in this world. Even if you don’t necessarily care about these issues as a business owner, solving them indirectly creates huge opportunities for branding and PR that, even selfishly, may make sense for you.

Perhaps the greatest example of all is Tesla. Electric cars are better for the environment, but no one cared enough to stop buying gas-powered cars. So Tesla created one of the most luxurious cars on the road, and made people desire it because it’s luxurious (see part VI. B.). The fact that it’s electric and better for the environment is a bonus. By associating electric power with luxury, Tesla may do more to drive a more eco-friendly future In the automotive industry than Toyota, who focused solely on value.

So, the next time you want to change something bad about the world, think about if there’s a way to attack the problem indirectly, whether by starting a business, aligning yourself with a corporation’s needs, etc. It may be the most successful way to accomplish your goals. If you’re starting a business, think about the problems you can solve indirectly by how you choose to build what you build. The opportunity is there, and companies are only starting to scratch the surface on how to apply them.

Skill Optionality for Career Growth

Most firms operate via division of labor and specialization. So, as a budding employee at most companies, the task is to figure out what to specialize in so you have a place in the organization. This task is valuable in that in ensues a role for you in the organization and allows you to become a subject matter expert over time in a specific field. The world needs subject matter experts, so picking the right specialty early on is an important decision.

Specializing Too Early

The problem with that decision is when most employees are forced to make that decision i.e. in one of their first few jobs or during college when picking a major, they really have no idea what a great specialty will be, either from a matching their personality perspective or being needed in the marketplace perspective. Furthermore, universities are literally the least knowledgeable about what specialties will be valuable in the market because they largely exist outside of the labor market. This is why we’re pumping out hundreds of thousands of journalism majors even though there are very few jobs in journalism above the poverty line.

Making the Bet

Andy Johns has a great post on identifying individual strengths and making bets on skills that will become more valuable over time in the labor market. I would encourage anyone thinking about how to position their career to read it. The challenge is in making the right bets, and how bets can scale long-term for a career. For example, let’s say you make a bet to focus on social media marketing. Is that skill likely to be more or less valuable in four years? Now, the answer to this question has two components: 1) how many more firms will want these skills in the future and 2) how many more people will have these skills in the future. If the answer to 1) is a lot more and the answer to 2) is not much more, that’s a gold mine, but if the answer to both is a lot more, it may not be that great of a bet.

Scaling the Bet

The second component is how that bet scales. To answer this question, you need to know far can that skill can scale upward in an organization or in a career with that specialization. Sticking with the social media example, will there be Directors of Social Media Marketing in the future? VP’s? Chief Social Officers? If that seems likely, that’s another reason to focus on that niche. Unfortunately, no matter what specialty someone looks at, the answer is almost always that there is a cap to how far that specialty goes before one needs to acquire more skills to advance further. Sticking with social media, that track may end at Social Media Manager, and then you need to have PR skills to advance to the next phase at most organizations, or more online marketing skills like SEM, SEO, and email marketing. After that, whichever track you choose, you would need to fill in those other skills to become a VP of Marketing or a CMO.

This scenario becomes a problem for many people, as there are no convenient ways to develop new specialties over time. If you are working on social media all day, chances are low that your manager will proactively make sure you develop PR or SEM skills to prepare you to advance. So, people get stuck with the specialties and levels they are at after a while, and if those specialties become less important, they become less important over time. In a field like marketing, the skills needed at companies change very dramatically, as new marketing channels emerge over time, and as marketing channels mature, they tend to be less effective. Going back to school doesn’t help, as they tend to teach less skill-based functions, and certificates are mostly seen as a joke by employers.

Going T-Shaped

Fortunately, there are some ways to dodge these main issues, which are 1) not being able to predict the future on which skills are best to specialize in because the market moves too fast, and 2) not being able to add new skills over time to successfully manage more disciplines over time. Most advocate a position called being t-shaped ( good example here and example for search marketers here). The t-shaped model is great, but it misses some key features for career development I want to highlight.

1) One big bet vs. a few small bets

Becoming a t-shaped employee still requires placing a big bet on one area of depth and an 80/20 approach to close disciplines around that area of depth. There is still a large risk if that area of depth devolves in importance over time. The T-shape implies a static field and demand of skills that does not represent the labor market.

2) Individual contributor vs. manager

Management (and especially upper management) positions are not t-shaped. They are largely about strategy and goals. Having a ton of depth in a field like social media for a VP of Marketing is not especially useful as that person is expected to have someone that reports to him/her that has more depth. A senior manager needs to be able to spot opportunities to meet goals, and manage a diverse group of people to work together to reach those goals. Currently, many managers have a jarring experience where they begin to manage multiple disciplines and people not related to the depth that got them promoted.

3) Different T shapes work better at different companies

Sticking with the marketing examples, going deep in social media might be great for one company, but not very effective for others. Only knowing a little about other areas will likely make you not a great fit if social doesn’t move the needle. Ideally, you want your skills to work on a broad array of companies (though not too broad, like tech and industrial).

Solving the Problem

So how do you de-risk the choosing of a specialty and position yourself for more senior positions over time? That solution is to embrace skill optionality. What is skill optionality? It is maintaining exposure to different (especially emerging) areas of a field, and focusing, when necessary on specific niches, but not being stuck on one skill forever. Think of that t-shaped framework as a moving model where the component that is the stem of the T is gradually moving around as opportunities emerge in different fields and sharing depth with one or more other fields. So, instead of one long stem on SEO as in the Moz example above, it becomes a pi as SEO shares time with social media.

Skill optionality solves many problems for young or even experienced professionals. Young professionals gain exposure to many different fields, and are more likely to find one they excel at to either specialize in for the long-term or use as an initial depth from which to expand. For those with more experience, it breaks through the career ceiling of being just a subject matter expert, and protects one when certain expertises become less valuable. If you become experienced in four or five things, it is unlikely all five will become less important over time. Typically, as one skill becomes less important, another becomes more important. Skill optionality protects you from movements in the market related to skill needs.

I am not describing being a generalist, but just diversifying your portfolio of skills a little bit. I’ve seen a lot of blog posts that say every marketer in the future should know how to code, and use Photoshop, and know how to execute a laundry list of different marketing tactics. Chances are that’s too much for most people. How do you know if you’re going too general? Well, you should feel like the smartest person in the room on multiple subjects. If you’re a manager, it should that you or someone on your team is, and, if the latter, that you’re the next smartest after your team member. If you can’t claim a few broad areas as your domain, you’ve probably gone too far. In marketing, most companies win because they focus on a few channels, and become the best in the world at them. Skill optionality is not about executing in 30 areas, but knowing and adapting to which few maximally benefit your company/career, and being positioned to strategize as well as execute on those.

How to Execute

The next question you should be asking is how to execute this. I would like to make sure people understand that corporate America is not built for skill optionality; it is built for specialization. So, optimizing for this career path is fighting against the corporate ladder in every way early on in a career, but with maximum upside later on in a career. Some good strategies for young professionals is to shoot for positions that provide exposure to different areas in useful ways, like a web analyst who measures online marketing performance and therefore begins to understand different elements of online marketing. If that is not possible, another good strategy is to develop a specialty at a large company, and then move to a much smaller one where that skill is needed, but there is plenty of opportunity to develop new skills as no one else will be doing other things close to that specialty (or other things in the T one wants to develop). Some larger companies have rotational programs, which sound like a great way to get exposure to multiple areas, though, without having experienced these myself, I can’t say for sure.

The bottom line is that it’s important to pay attention to new opportunities to go broader in your skill set, and fight to get exposure to those opportunities. This will de-risk specialties that go out of favor in the market as well as better position you for management in the future. Even if you never want to manage, having multiple skill sets that you can adjust your depth on ensures you are always a viable candidate for many open positions, and will make you suitable for positions some companies desperately need.

Note: My examples are in marketing because that’s where I can get most concrete, but these examples can easily apply to engineers (via languages and elements of the stack), designers (with web, mobile, print, interactive, copy, coding, ui, ux), or just about any other discipline I can think of.

Three Phases of Scaling Startup Marketing

Quite a few people have asked me recently how to scale their marketing efforts. The short answer is: as leanly as possible. I have realized that while many entrepreneurs intuitively understand that statement, they do not understand what that means in terms of what types of marketing you try and in what order. I have developed a framework to easily identify how to think about this process that scales across different types of startups that I will present below.

Pre-amble I: The Three Costs

The first thing that’s important to understand before delving into this framework is that lean = with as little cost as possible, and that costs come in three areas: marketing expenses, development expenses, and payroll expenses. Marketing expenses are pretty easy to explain. If you spend $5,000 on Google AdWords this month, and each ad promised $5 off, your marketing expenses are the $5,000 for AdWords plus $5 times the numbers of conversions that redeemed the $5 off promotion. Development expenses are a little more difficult. If you outsource development, it may be easy to think that the development expenses are how you paid your developers, but that would be incorrect. The real issue here is the opportunity cost. Whether you have your own developers or outsource, if your developers work on, say, SEO initiatives, that is time they are not spending on new features for your customers, infrastructure scalability, et al. The third cost is payroll expenses. This is the cost relating to paying the marketing people on your team. Early on in startups, payroll can be the largest expense, so adding people to your team, especially in marketing, needs to be carefully considered as payroll expenses are harder to adjust than marketing or development expenses. The only way to adjust them is to fire someone or reduce their salary, and both can have a negative effect on employee morale and company culture.

Pre-amble II: The Metrics

After you understand costs, you need to understand the metrics on how to evaluate marketing decisions. For startups where a customer pays you for a product or service, this is a little bit easier than if you have yet to determine a business model. A couple key metrics for me (forgive me if some of this is basic):

CPA (Cost per Acquisition): For this metric, you take the amount you spend in marketing expenses, and divide it by the number of new customers you acquired. So, in our previous AdWords example, let’s say I acquired 500 customers with that effort. That would make my CPA:
Cost: $5,000 + ($5 * 500) = $7,500
New Customers: 500
CPA: Costs/New Customers: $15

Revenue/User/Time frame: The CPA is not very meaningful until you know how it compares to the revenue those new customers brought you. The important thing here is not to just compare the revenue of the initial sales of that customer if they are likely to purchase again. If they are likely to purchase again, use cohort analysis to determine how much in revenue those new customers will make you over a certain time frame. The obvious question is how long a time frame should I use to compare against CPA. The short answer is as long you can reasonably predict. So, if you have enough data for a marketing channel to accurately predict how much a new customers from a new channel will make for your business over a two year time frame, you should feel comfortable comparing to a two year value. In reality, a startup almost never will have the data to accurately predict that far ahead. At the start, you may only have three months of reliable data. Reliable means both statistically significant i.e. not just 12 customers, but a reasonably sized population, and a situation where historical customers are representative of the newest customers. Once a startup reaches some scale, the latter requirement is the hardest. As a startup attracts more and more new customers, it typically has to start targeting customers that are less likely be early adopters and less likely to experience the pain your product solves as acutely as those who found it early on. Both of which will likely make new customers today less valuable than new customers from a year ago, keeping all other variables static. I almost always advise startups to keep their revenue metrics to a year or lower. After a year, you are waiting a very long time to prove your assumptions correct, and need to start discounting for the time value of money.

Volume: This basically asks is a marketing channel generating 12 customers or 1,200. This will determine how to prioritize resources among marketing channels.

Potential: This asks if a marketing channel has room to grow, and just needs more budget/people/development resources to achieve that potential, or is it already maxed out.

Marketing Profit: In this sense, profit equates to Revenue/User – CPA. Channels that have high Marketing Profit are going to be the areas you want to invest more time/money/people in, if the potential has not been reached and the volume is significant.

Note: Some marketers may want to add in the promo costs not in CPA, but subtract it from the revenue side. I dislike this approach, as it increases variability on both sides of the CPA vs. ARPU model, which makes it harder to compare the effectiveness of specific marketing channels just by looking at CPA.

Phase 1: Product Driven Growth
Scalable, Measurable, Engineering Opportunity Cost Driven

The leanest way to acquire customers is not to spend any money on them and not spend any money on marketing people. The chief ways to do that are to use the product you have already built to acquire more customers. There are four main ways:

Product Quality: This is the case where your product is so damn amazing that every person that uses it naturally tells everyone they know about it, and that’s what drives growth. In another, this is the build it and they will come strategy. Also known as a pipe dream. But improving the core product every day helps grow it, and people sometimes forget that.

Search Engine Optimization: This is the process of designing your site to appeal to search engines to rank for relevant queries to your business. Depending on the business, this may be a large opportunity or a very small one, and a very crowded space or a relatively sparse space. The main question to ask is: are people on search engines currently searching for keywords that closely match the product or service I provide? If so, can I reasonably expect that by designing by site using Google best practices with some well placed content that I could rank in the top five for any keywords that in aggregate would drive a meaningful amount of new customers? You may offer a product with a ton of keywords, but heavily competitive for SEO e.g. consumer real estate, or a product with no keyword volume, but also sparse for SEO e.g. a technical solution for resin casting.

Referrals/Viral Loops: This is the tactic of asking current customers to invite others to the service, perhaps offering a financial or psychological incentive. This is a fairly low development tactic with high upside and little downside, so it is very popular.

Conversion Rate Optimization: This is the process of making continual changes to a website/mobile app/landing page with the goal of increasing the amount of visitors who turn into conversions. The only costs here are development costs, but the effects are very measurable. This may be difficult to do until you have enough traffic on your site accurately measure lifts in conversion rate.

Main constraint: Development resources
What should happen here: You start here, iterate as much as you can until your development pipeline gets too clogged. Then, as you wait for development to catch up, you move onto Phase 2.

Phase 2: Performance Marketing
Measurable, Scalable, Marketing Budget Driven

The next leanest way to acquire customers is to develop marketing systems that, once created, can scale from driving dozens of new customers to thousands with the only additional input being more marketing expenses. Early marketers in a startup can focus on marketing efforts that scale without having to hire more marketers and have vast potential. If you don’t have a business model yet, most of these tactics (besides email or push notifications) will be off limits, as you will have no Revenue/User/Time frame to compare CPA’s against.

Search Engine Marketing: This is targeted specific keywords on Google and Bing and bidding to show an ad for your product or service to potential new customers at the top of the page. Like SEO, you need to determine if the search engines have enough search volume to make this an effective channel. You also need to determine how expensive it is for you to bid on keywords and convert them. If there is a lot of search volume and not a lot of competition, this can be a very effective way to drive customers, and is very trackable to CPA goals down to the ad and keyword level.

Email Marketing: This is sending either mass or, preferably, targeted and personalized emails to your existing user base to either convert them into a paying customer or entice repeat purchases. This is probably the most cost-effective and under-utilized tactic for most startups.

Online/Mobile Display Advertising: This is showing banner ads on websites and mobile apps. Most startups use retargeting to reach people that have already been to their site but not converted. More sophisticated startups are experimenting with real time bidding to find ad impressions that are likely to reach their target market. The challenge here is determining effectiveness of spend as few people click ads, and correlating views to purchases is a dicey proposition. There is near limitless inventory to spend on if you can determine effectiveness.

Main constraint: Money and diminishing returns
What should happen here: You experiment with a few paid, scalable channels, find the ones that work, and scale them until you see diminishing returns. If your team still has bandwidth, then you have them contribute with Phase 3 tactics. If your team doesn’t have bandwidth to scale these techniques, but they work, you should hire a dedicated resource for them.

Phase 3: Brand Marketing
Non-Measurable, Non-Scalable, People Driven

These are techniques that have one-time value, and/or require not just increased investment, but also increased resources (read: people or development) to scale. They are also frequently going to only work in one market or for one type of customer.

Content marketing: Content marketing has many names, but is the creation of blog posts, articles, videos, of infographics that are of interest to your target customer. They can be great content to help rank for SEO, especially if your business does not have more direct keywords to target. It is even more impactful as content for social media or distribution to media outlets. It is non-scalable because if you want to do more of it, you have to produce more of it, and it’s time consuming to do it well unless it’s user-generated.

Out of home: This is the process of buying billboards, bus shelters et al. out in the real world and placing ads for your business in them. This can be very expensive, but also very valuable if there’s a way to use them to target a very valuable audience e.g. hungry urban professionals right before dinner in GrubHub’s case. It’s non-scalabale because only certain geographies will have good opportunities, and what will work in one geography may not even be an option in another.

Community management: This is either using a section of your site/app or more likely social media channels such as Twitter and Facebook to communicate with your audience in conversations they are interested in having with you. This is a great way to provide quality customer service and create evangelists. It is non-scalable as it requires a dedicated resource to monitor these channels, and as you scale, to keep up quality, you need to add more dedicated people for it.

Public relations: This is the process of getting news outlets to showcase you. It is non-scalable because it provides a bump, not an engine, requiring constant efforts to make it a consistent source of traffic.

Marketing promotions: This is the process of a creating a compelling campaign that attracts people to your business, whether it’s a contest, event, etc.

Main constraint: People
What should happen here: Use your existing team to determine which of these is important for your company, and then staff accordingly.

Running All Three Phases

These phases do not imply that you focus all of your efforts on phase I, max out, and then move onto the next phase. The reality is that the constraints of the various phases set in quickly. So, it could that in close to no time at all, you are executing programs in all phases. This blog post just provides the framework for prioritization and best practices for maximizing how you grow your marketing programs.

The Power of Physical Evidence

Most people know the traditional four P’s of marketing: product, price, place, and promotion. Some may even be aware of other P’s such as positioning and people. But far less may be aware that for service businesses, there is a seventh P: physical evidence. Physical evidence is any kind of physical manifestation of a service. Unlike products, services do not have something you can taste or touch or view, so physical evidence is a tool marketers use to re-create that in a non-physical service. It can be as little as a receipt or the uniform of a company representative or a building’s design. It is used to leave a lasting impression on the person experiencing the service as well as potentially showcase that the person used the service to others.

An over-emphasis on removing the evidence

As entrepreneurs have started to build service businesses using the web and mobile devices, much of their efforts have been to replace the physical evidence of the old ways of doing things. Receipts? Don’t need those anymore. Customer service reps? Well, hopefully, no one ever needs to work with one, but if they do, they certainly won’t see what s/he is wearing. Building? There’s no need for them when everything can be accomplished by an app or a website. We’ll serve customers nowhere near our office and let employees work remotely. Punch cards? No one needs to carry those around now that we have apps that can store that information.

An over-emphasis on social promotion

This rush to eliminate all these reminders of the pre-online world has left a gap in many online companies’ marketing mix: any evidence that someone actually used the service that can remind them to come back or attract others. While every consumer web and mobile company seems to be falling over themselves trying to get you to tweet or create a Facebook update about your experience with them, which has been called the “exit through the gift shop” of the consumer web, few companies have tried to do the same in the physical world.

Word of mouth still happens offline

Many marketers have fooled themselves into thinking the atomic unit of much sought after word of mouth is a post about them on social media. The simple fact is that most word of mouth still happens via words, said through the, you guessed it, mouth. And that only happens offline. That realization is only half of it. Much word of mouth doesn’t come from people being so overjoyed by a service that they run and tell their friend about it. It happens because their friend sees them do something and asks them about it. For GrubHub, that might look like:

Clueless Friend: “So when are you going to order that sushi?”
Totally Hip You: “I already did. I just got texted that it will be here in 20 minutes.”
Still Clueless Friend: “Really? I didn’t see you make the call?”
Totally Hip You: “I didn’t. I used GrubHub.”
Starting To Get Clued-In Friend: “What’s GrubHub?”

What great physical evidence looks like

What physical evidence can help you do is generate more of those types of conversations in the real world. Great pieces of physical evidence do the following things:

1) Showcase the usage of the service in front of others, friends or not: When someone skips the line at an amusement park, they pass everyone in line on the way to the front, either advertising the service or making people ask how they did that and trying to find out

2) Become a showcase for the service even when not in use: Lyft’s pink mustaches stay on the fronts of cars even if no one is riding in that Lyft, or if the Lyft driver is just driving him or herself somewhere, leading people to ask what the mustaches mean.

3) Remind the original person who used the service to use it again: Punch cards get stored in wallets and remind and entice the person to make repeat visits just by seeing them or by there being a deal after a few more purchases.

Now, physical evidence is just one component of a successful marketing plan for a service. If it doesn’t match your positioning or your product, it will likely be ineffective. So, before you think about adding loud noises when someone opens your app (looking at you, Gilt), think about what the physical evidence will say about your product and if it will achieve one of those three goals listed above that is consistent with your company goals.

Make Choices (And Stick By Them)

Above is one of my favorite scenes from Wonder Boys (2000), about a writing professor who can’t seem to finish his new book because he keeps writing so many different parts. Now, at over 2,000 pages long, he sees no end in sight. I see this problem in the world of startups quite a bit. Growing startups see someone else doing something that is gaining traction, and then they add that use case to their company as well. Instead of sticking with the earlier choice of their business’s direction, they now try to remove that direction and accommodate more choices. Need I remind you of every company launching their own daily deals arm, or Facebook copying every social startup ever.

For growing companies, it’s a very common feeling in a business to always be jealous of what another business has and neglect all the things your business has going for it that the other one does not. But it is still wrong. You made a choice, and it looks like it’s working. Don’t undo those choices you made and ruin your growth. For companies with some growth, the lure of an attractive market segment can be overwhelming at times, but choosing to focus has more advantages. The first is that you develop a concrete brand for your customers. They know what you stand for, and what you are trying to achieve. What the risk of expanding too early? For growing companies, the main one is alienating your core customers. Let’s say you operate a luxury good, and to expand your market potential you offer a lower cost offering. What your brand used to stand for (exclusiveness, personal service) changes as the market is expanded. Those core customers may no longer identify with your company of your other customers and may now seek alternatives. What also happens is all that thought and development time that went into the expansion did not go into your core business.

I would argue you should choose to focus on one use case for one customer segment for as long as humanly possible as a growing company. That runway ends when you anticipate either a technology shift away from your use case (for Dropbox, that would be something like less reliance on files due to cloud services in the future), you are running out of ways to add value to your core segment’s core use case, or your use case stops growing for that segment (note: this is different from the game theoretical or innovator’s dilemma problems of more established companies where action should be taken quicker, but isn’t). I think a lot of startups fall into the trap of “this isn’t a large enough market”, as if acting like venture capitalists responding to their pitch. First off, market size only matters if you capture a meaningful piece of a market, so you should focus on capturing a meaningful piece first. That will also give you a much better understanding of how big the market could be. Second, you are most likely not a VC. You don’t need a home run to be successful. VC’s do, because most of their other investments will fail.

To wrap up, starting a business a is a choice, and you should make sure the product of your business reflects strong choices as well. You need to give that product a chance to show you made the right choices, and if you did, don’t second guess your direction because another business has made some good choices as well.

No Replies Will Be Accepted to This Blog Post, or A Lesson on Customer Variability

A friend’s startup recently sent me a marketing email that was sent from a “noreply@” email address. I chastized him in an email about this, and he asked to justify why it’s a big deal. I responded with an email he probably was hoping was a lot shorter. I figured I’d adapt it to a blog post if it helps others.

No replies are not a good idea for big companies and especially startups because you want to leave open any opportunity for a user to provide you feedback or ask questions. Giving your users a no reply tells them you don’t want to hear from them and don’t think their opinions/issues are important. They are also a little more likely to end up in spam folders. CampaignMonitor has a great write-up on this, so I won’t belabor the point.

What I want to do is go deeper and talk about customer service and variability. There are five types of customer variability in services:
Arrival: when someone wants a service
Request: what someone wants from the service
Capability: someone’s ability to perform a task required of the service (particularly in self-service)
Effort: how much effort someone is willing to put in for a service
Subjective Preference: someone’s opinion about how a service should be delivered

In service, there are two strategies for dealing with customer variability: accommodation and reduction. Accommodation is accepting customer feedback/interaction wherever the user tries to initiate it (email replies, chat, phone, twitter, etc.) and adapting to it. This leads to the best experience for customers, but also costs more and is more complex to do as you have to monitor/staff multiple channels. Reduction is the opposite: defining one way customers can do things (prix-fixe menus, noreply, hours of operation, iPhone only). This is very cheap and simple to manage, but leads to a worse experience for customers.

A restaurant is a type of service that can either reduce or accommodate variability in many ways.

How they reduce variability:
Maintain and publish hours of operation
Manage inventory through reservations
Special prices at off-hours
Prix fixe menus to eliminate choices for customers

How they accommodate variability:
Self-service salad bars and buffets
Train workers to host, wait, tend bar, and bus tables depending on which type of work is needed
Allow guests to stay as long as they want
Allow customers to set tips based on service

Both are totally viable strategies, but for customer feedback, I find that reduction strategies just don’t work because you eliminate feedback from certain types of customers i.e. those that don’t fit your preferred method for communicating with you. Those are probably the customers you need to learn more about. Also, for a reduction strategy to be successful, it pretty much requires great training of your customers. This is really hard to do unless frequency of interaction is high or the penalty for breaking the rules is very severe. In an app or website’s case, it is easy to train someone how to use the app because hopefully they are a weekly active user, but much harder to train them how to deal with a problem with an order, as that (should) happen very infrequently.

So, not only should you think twice before setting a no reply, but also you should think about your strategy and whether you’re attempting to reduce or accommodate variability or your customers and why.

A Manager Should Act Like a Fullback

A common question I hear is what makes a good manager. There have been countless studies on this subject, and some good theories on specific pieces of management, such as situational leadership and being a shit umbrella. While both of those approaches are great, lately, I’ve been thinking that a manager is like a fullback.

For those that aren’t familiar with the player in football, a fullback is an offensive player who is primarily a blocker for running plays. On running plays, the offensive line opens a hole for the running back. The defense tries to close that hole by running into the hole. What a fullback does is go through the hole before the running back and pushes everyone out of the way so the running back can get through and and make a big play. If things go well, all you see if a running back running into the endzone without even being touched. The fullback is a crucial, but under-appreciated position in football because all attention is given to the person making the big play. But, in front of almost every great rusher there was been a fullback clearing a path for them.

So what a manager should do is learn about an opportunity from a star employee and clear a path organizationally for that employee to seize that opportunity for the company. The manager could come out a little bruised, but the employee hopefully scored a touchdown for the company.

Anyone else have any good analogs to management?