Marketing vs finance – who’s funding who?Sanchit Khera
Everyone in the startup space has a darling company in mind which they’d like to emulate when it comes to raising capital and user acquisition. For many in Silicon Valley, its Slack. A winner of multiple awards last year, Slack enjoyed triple digit growth based on its integrated SaaS model and unique design and UX. It spent literally nothing on marketing and went on pure organic growth. They’re privately worth over $3b. Here’s their growth as of last year, in their own words:
Which means that it’s not only a free gold-rush of users; their freemium model has delivered close to a million paid seats that are locked in paying monthly.
Let’s look at Canada, a growing Silicon Valley replica but not likely to produce major unicorns anytime soon. This is the perfect geography to truly understand the relationship between marketing and finance in a startup environment.
Impact Centre Canada, a private research firm, conducted a qualitative study of over 900 Canadian startups, many of which were in the tech, e-commerce, auto, IT, and pharma space. What they uncovered was truly eye-opening. When it comes to marketing:
“Canadian firms with the lowest recorded levels of external funding (our proxy for growth) have only 13% of their employees engaged in M&S activities, this percentage was significantly higher for businesses that had managed to raise funds. Firms with US$50,000–US$2 million of funding have 24% of their employees engaged in M&S. Thus in the early stages of development, Canadian tech firms are likely to have a larger fraction of their workforce dedicated to research and development (R&D) than to M&S.”
Let’s look at the US. The analysis of more than 60 tech businesses in the US showed a different recipe for success: firms that scale quickly to US$10 million in revenue spend, on average, 73 percent more on M&S than on R&D. Leading American firms have 40 percent of their employees dedicated to M&S. This is significantly different in Canada, where even the highest funded firms only have 31 percent of their employees in an M&S role. This creates a vicious cycle: fewer M&S employees mean less M&S activity, which slows down all the processes needed for customer traction and entry into the market.
“Marketing doesn’t have to be the excuse for a startup to create customers when it doesn’t work out organically,” Gary Vaynerchuk remarked in a recent keynote address. He added, “Marketing is the backbone of the startup. Every time a founder talks about his startup to someone/anyone. He’s marketing it.”
Truer words haven’t been spoken.
Marketing is evolving now, with previously growing brands now looking towards marketing as the way forward. Customers are increasingly price conscious, and post-GST affecting margins, brands will need to tighten up their costs and invest in marketing as soon as possible to avoid competitors trumping the market through cost-cutting or promotions during the year.
With startup darlings like Droom, Oyo Rooms and RedBus investing heavily now into marketing, startups have to realise that it’s the marketing that fuels the brand when the brand has issued its first round of financing.