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What Startup Founders Didn’t Know

By July 22, 2013Article

Do founders understand marketing before they launch? There is a divergent opinion between investors and founders, but even founders admit to weaknesses. and Silicon Strategies Marketing collaborated on a small-scale survey to test what founders knew when they launched their first startup. The survey was not designed to be large and statistically robust, but to gauge if, in hindsight, the founders thought they were ready and in which aspects of marketing strategy they were not. Their candid responses reveal that if time travel permitted them to relaunch their first startup, marketing savvy would be on their enhancement list along with product features.

Knowing their market

“I had no idea how to measure a market or even how to define one when I launched my first startup,” was a typical response to the survey. “I was a technology guy and had [the] least knowledge or respect for the market or the marketing techniques.” 

On average, founders claimed they were slightly above average on their knowledge of total, addressable and realistic market sizes (6.3, 5.8 and 5.4 respectively on a 10-point scale). It is Silicon Valley lore that the average founder pitches investors using pie-in-the-sky total market size figures, but lacks the ability to scale back assumptions concerning potential markets. The fast downward slide from understanding the market at large and specific market opportunities is clear to former founders. 

“The gap between the addressable market and the realistic was so much greater than expected,” was a common theme concerning market sizing. “That was driven by issues such as cost of ownership and perceived value. I wish we had understood those selling factors more in a market assessment.” 

Even predicting these gaps did not always help founders. “We had only marginal ‘inside knowledge’ of our target market. We were looking for a retired exec to join our board or advisory team but did not succeed in finding/securing one …. Would have been good to target a partner right away.” 

Another respondent said, “[Wish we had known] how purchases were made, including the ‘traditions’ in the business and what academic degrees were necessary to even have the right conversations.” 

In fast-moving technology markets, some founders felt that there was no good way to perform these exercises, and relied on leaps of faith. “We could not know what the market size was because we were launching a new service and took on considerable market risk. We could only come up with various proxies of somewhat similar things. I wish I had had the benefit of the experience of other companies in similar market risk-facing situations in other industries to get a better sense of how long it can take to create a new market.” 

Even with major vendors as sherpas, founders often failed to map their market potential to find profitability. “We were totally naive about the capability of the iTunes App Store as our marketing channel and believed that the 30 percent take from Apple would produce a complete marketing and sales solution. Wrong. We are [now] paying for downloads and money-transfer service only.”

Yet the most obvious complaint about sizing their markets was often summed up as “I would have done more research.” 

Segment or die 

Founders are often immune to segmenting their markets. Blame the Internet, naivety or high hopes, but first time founders rarely segment their markets or prioritize well-defined target segments. In terms of defining segments, assuring homogeneity of buyers and performing segment profitability projections, founders gave themselves scores of 5.7, 5.9 and 4.4 out of 10. That last one, knowing how potentially profitable one segment is over another appears to be a deadly drop-off. 

Thankfully “We didn’t segment at all,” was the least common refrain. Most founders, 45 percent to be precise, targeted two segments, which is an appropriate limit for most startups. However 30 percent targeted three or more, which is typically overreach for organizations because their feature set is incomplete in most segments and it stretches their marketing budget too far. Only 20 percent of respondents targeted a single segment. A full 65 percent of founders also documented the adoption life cycle (early adopters, early majority, etc.) of their segments before launching. 

This presents a mixed picture and explains many of the mixed comments founders left in the survey. “It took us some painful periods to really understand what segmentation was.” Weakness in segmentation modeling combined with poor profitability analysis likely led to more than a few downfalls and dower comments. “I wish I had had more people in the field talking to customers to find out earlier that our segmentation was wrong.” 

Some respondents openly admitted to discovering segmentation as a byproduct of going to market, which may work but is dangerous. “It is not that we did not know about segmentation. Our initial product was an MVP level and did not include the analytics to learn about which segments we were attracting, and so we have flown blind on where to focus our investments from a segment point of view.” 

Where most founders reported problems in their segmentation was deep understanding of the discovery and buying habits of each segment. “The selling cycle in multiple segments was so drastically different we wasted time and money trying to target three segments …. Target marketing worked and got qualified leads, but selling was so different. With 20/20 hindsight we would have targeted only one segment.” 

Another founder said, “Our understanding of each of the segments varied greatly. For Telecom, Healthcare and Finance/Banking, we had great depth. For Transportation and Manufacturing, for example, we had precious little. We were much more successful in those segments where we understood the industry.” 

Yet a different founder replied, “We would have benefited from understanding the slow adoption curve of the industry. We discovered quite late that there was a small segment of tier-two potential customers we could have approached to help fund development as a partner/customer as they were more open to technology as a strategic competitive advantage against the tier-one players. It took us a while to let go of the first tier as a target.” 

Mapping the genotypes

Founders admit to not knowing their buyers (Silicon Strategies Marketing calls different purchase influencers “genotypes” while a more lose definition of “personae” is often used in the trade). When it comes to itemizing each genotype, listing their functional and emotional motivations and knowing when in the sales cycle each genotype should be engaged, founders flunked themselves with average scores of 4.5, 4.6, 4.5 and 4.3 respectively. (As we will see later, this dovetails into the founders’ lack of focus on field messages). 

Often, even the basics of genotype mapping were beyond startup founders. “Wish we knew who is the person that makes the decision and who is the person who influences and what works for each of them.” 

When it came to knowing each of the genotypes, one respondent replied, “Knew nothing of this sort. I was a pure techie at the time.” 

What catches many founders by surprise is that many people influence a buy decision, and that they all have different motivations. “Wish we would have done a much better understanding of the different segment influencers — they were all different, and even ones that shared the same title and span on control were totally different in motivation.” “The complexity of the awareness, trust and pre-sales cycles were insufficient.” 

Sadly, even seemingly prepared startups often failed to know all of their buyers, or were not even aware that it was imperative. “Even though we had two marketing folks on the founder team, we did not approach our potential target market in this way. I was surprised after I learned of these techniques that we had not done this more explicitly.” 

Whole product wholesomeness

“While we went for the wow factor to drive interest, the other whole product features, from documentation to support, weighed heavily after betas and prototype trials. Turns out that in the segments we were playing people had grown tired of waiting for the finishes on a product and whole products were essential.” 

Despite rating themselves a 6.3/10 on the completeness of delivering a whole product at launch, a full 21 percent of respondents — nearly one in four — admitted that “we had no idea” what the whole product definition for their target segments was. This was balanced by a stunning 47 percent who thought they delivered an augmented product that was beyond the essential and expected needs of their buyers. 

In an attempt to deliver a whole product, founders avoided paying for technology to include as part of the solution (64 percent), but almost as many skipped Open Source (59 percent). Oddly a mere 23 percent partnered with other companies to deliver on a whole product solution. Together this means that founders were largely trying to create an entire solution without the aid of other technologies, a common and key approach to getting the right product to market more quickly. 

As is typical in Silicon Valley, many founders launched their product on a grope-and-feel product definition process. “Still evolving the product,” said a typical founder. “Eventually will incorporate content partners for completeness. We lost momentum after first-level launch and have never regained it.” 

And providing support as part of a whole product experience was a recurring deficit for startups. “The amount of support that justified why a ‘whole product’ was necessary [was larger than expected].” 

Assumed the position

Founders were fairly confident that they knew their market position (6.7/10) and SWOT (6.8/10) against competitors, but thought themselves barely adequate in communicating this to their market (5.1/10). 

Marketing communications are a persistent weak spot with startups, so their score is not surprising. And most founders do attempt basic competitive reconnaissance before betting their kid’s college fund. But knowing their position and using it to guide them into subsequent market segments was reported as a failure point, with 62 percent admitting they had not chosen their next market position to guide development. 

“We were dealing with migration and there were thousands of migrations. Wish we had chosen one that we wanted to concentrate on most, where our strengths were and then do a competitive analysis before marketing/selling.”  

“We continue to lack prospect and customer feedback in our evolving positioning.  As a workers co-op, our technology team … [has a] junior understanding of marketing and we have suffered as a business from that lack of understanding.” 

Of the respondents that had three or more segments, their positioning or lack thereof created problems. “We did a good job, did all the SWOT, had good positioning, did lots of competitive analysis — it all worked to get interest and qualified leads into the pipeline. But product issues and selling inefficiencies between segments hurt.” 

Branded with a weak brand 

Communications are a constant weakness with startups, and branding is the headline form of communications. Yet our respondents tended to rate their customer motivational insight, branding documentation and matching outbound communications to their stated brand highly (6.0, 6.1 and 6.3 respectively). 

Key to this seeming dichotomy is the belief that starting, learning and pivoting is a viable approach for startups. “We understood it but viewed ourselves as entering a rapidly evolving, green-field market and that it was OK to learn and ‘pivot.’  While it would have been better to have been all-knowing from day one, we did not have the team ability to do that. But our SEO and awareness have been hurt by the pivots.” 

Another hard lesson for startups is realizing that in the absence of defining and communicating their brand, the market defines their brand for them. “We did not know that branding was what customers thought of us behind our backs. Customers thought we were idiots for trying to have a brand without an active customer base (large enough awareness) or without the spend to create and justify the brand image.” 

Even when branding was considered, it was often a priori and did not necessarily match what the market needed to know. “We were focused on the product. We did do some work on internal, personal values among the founders, and the marketing folks may have had branding ideas in their heads, but we never articulated them much less applied them to what we were doing.” 

They didn’t get the message 

Communications fell far when it came time to go to market. Core market messages are distilled from one another, but most startups craft them on the fly, and it shows. Our respondents thought their product blurbs, elevator pitches, tag lines and value propositions were tidy (5.2, 6.2, 6.1 and 6.9 out of 10); but their field marketing messages — what their sales people and websites said specifically — failed to communicate those same elements (3.7/10). 

Over the years, Silicon Strategies Marketing discovered a disconnect between the value propositions founders think their products/services deliver and their ability to articulate it. We see this divide in survey results. Assuming that founders’ self-perceptions about understanding value propositions (6.9/10) are accurate (which in our experience it is not), they then fail to communicate that value when facing customers (3.7/10). Nowhere is startup failure more likely than in communicating, as evidenced by most startup website landing pages. 

“The translation of messaging to sales guide failed when it came to multiple segments,” was one response echoed in different ways by others. “Selling and in particular argument/response was actually different for segments.” This illustrates a disconnect between the sales and marketing teams inasmuch as salespeople have to adjust to each segment or specialize in one. Field marketing messages for each segment are likely going to be unique. 

“It is really more a case of what ACTIONs we should have taken … involving testing our messages with prospective buyers.” Startups often lack patience when it comes to testing marketing communications, despite the Web making such testing easy. “We knew a lot. The only reason for not capitalizing more was an inability (lack of dedicated funds and skilled people) to fully execute vs. our other priorities.” 

“Marketing messaging matters most when the right people are exposed to it,” was one of the more unique responses, again showing how both cross-segment and cross-genotype sales can be problematic in the field. “When the wrong people are exposed, they can easily misinterpret and misrepresent your message.” 

When money matters … or doesn’t 

Most surprisingly, the survey found that investor money was not a determinant in startup success. For respondents that faded or jumped directly into the dead pool, all had funding be it seed stage, angels or VCs. Half of the companies that reached maturity or had a “strong exit” were entirely bootstrapped while the rest reported seed or VC-level funding. This latter shows a minor trend in the market, where founders are forgoing venture money if they believe they have a fundamentally strong offering.  

funding chart

Take it away! 

From the mixture of data and comments, common first time startup marketing mistakes become very clear:

  • They rarely have a strong understanding of their realistic market, a fact that investors openly complain about. Without this, startups tempt funding rejections and poorly focused development and promotions.
  • They often do not know anything about all the buy decision influencers and thus languish in complex sales cycles.
  • Startup outbound communications, be it branding or field messages, are uniquely under-developed and often fatal.
  • Startups too often segment by trial and error, and as often try selling to too many segments simultaneously. 

Guy Smith is the chief marketing strategist and founder of Silicon Strategies Marketing. He is also the author of the Start-up CEO’s Marketing Manual (available in print and Kindle editions), a rapid-fire boot camp to ensure that founders will guide their teams and marketing employees away from the common cliffs of epic failure.

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