Those companies that are in the early stages of a startup building a product stand to gain “the greatest” valuation benefit from marketing
About half (45%) of all B2B technology startups make no effort to market their products. As a business function, marketing does not exist in those companies:
“…we find that investments in systematic marketing by early-stage B2B start-ups increase firm valuation, yet more than half of early-stage B2B start-up firms choose not to invest in systematic marketing, apparently believing such investments will not pay off.”
That’s according to a new paper published in a peer-reviewed journal by two academics Gary L. Lilien of Smeal College of Business, Penn State, and Ofer Mintz of UTS Business School, University of Technology Sydney.
The authors set out to understand “whether or not” startups “allocate scarce resources to conduct systematic marketing.” It looked at data that’s been “largely ignored” and concluded:
“It is particularly striking that while investing in systematic marketing is more beneficial to early-stage B2B start-up firms than to any other category of start-up, those firms are the least likely to do so. [emphasis theirs].”
The duo used “multi-method approach that involved interviews, secondary data, and a follow-up survey” to conduct the study. More specifically, they did the study twice to ensure its validity. In both cases, the sample included hundreds of successful and unsuccessful startups.
Among the analysis were the following:
- “Only slightly over half the start-up firms report conducting systematic marketing.
- Conducting systematic marketing provides the greatest benefits to the valuations of early B2B start-up firms but is detrimental to the valuations of early B2C start-up firms.
- Despite the benefits that conducting systematic marketing conveys to early-stage B2B start-up firms, those firms are the least likely to report conducting such marketing.
- Well over half of the early-stage firms in each of our two empirical samples get the decision about whether to conduct systematic marketing wrong – either they do not conduct systematic marketing when it would improve their valuation or vice versa.”
That point that really stands out for me is the impact of early-stage companies. Too many investors and founders recommend avoiding marketing during the early stages. I’m willing to be those that do have very little marketing experience (studies demonstrate this is true).
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Yet, I’ve always had a different perspective: the early stage is a period of time when marketing spend is most valuable.
Why?
You don’t need a lot. There’s less noise in your niche (or market, if you are setting out to create one). You get really intimate with customers and prospects – which sets up your positioning, ideal customer profile and messaging.
B2B technology products tend to be complex. To sell them you need to educate prospects. Marketing in B2B is largely about education.
It’s a really hard slog to sell a new product for a complicated problem to a fickle customer who’s already overworked, over-promoted, short on time and unfamiliar with a company or product.
This is as opposed to those startups that perform little-to-no marketing until they get to a later stage. Then they have to play catchup.
At that point, it’s not just educating customers with a blank slate anymore; you now have to change the perceptions that the market now holds as a result of your competition’s marketing all these years as you remained quiet.
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I first learned about this study from an article in Media Post: B2B Startups Dodge Marketing – And This Could Hurt Their Valuation. The complete paper was published in Industrial Marketing Management, a peer-reviewed journal, and titled “Should B2B start-ups invest in marketing?”
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