Category: Marketing

By Akos Tolnai and Christopher Skinner

Go to market strategy was a stronghold, captained by marketing. The more you could spend on marketing or, in general, customer acquisition, the steeper the growth curve would be.

Or to put it this way: even a mediocre product could become a success with substantial marketing spending.

The last decade has changed this status quo. 

Perhaps that change began with the controversial introduction of Samsung’s first smartwatch, Gear, in 2013. Samsung’s marketing budget was one of the biggest by that time, both in terms of total amount as well as proportionately compared to revenue. 

But Gear didn’t perform well. Samsung claimed to have sold 800 000 units, with local sources raising doubts about the validity of this number. Moreover, quality may have also been compromised: according to reports, Best Buy experienced a previously unheard of 30% return rate. More details on this in the Gear Wikipedia article.

And this particular story isn’t unique at all in the last decade. Or defining “decade” more precisely: the period between Lehman Brothers and Covid. Flops galore, they all boil down to product-market fit and the results of poor product-market fit. How? Why?

We think two dynamics are to blame for these flops—changes in customer behavior and general business constraints.

1. Rise of Moment of Truth
2. CAC rising

Moment of Truth

There are only two types of products (or services) in the world—those with the “moment of truth” ‘halo’ and those without this halo. 

What is Moment of Truth? 

Marketing communication is about hitting the right target market and customers with the right message. It is usually not an impossible task for seasoned marketers, even though their work is more complex and costly than before. In a business with a moment of truth the marketing message is validated. When you buy something, you definitely realize the marketing promises or hype is true or not. You decide for yourself. The marketing lingo (a.k.a. Marketing bullshit) gets tested against the product’s reality. 

The promise of “Great battery life,” or is it not? Great performance with all-day battery life, when in reality, you maybe get to noon? You either return the product or start complaining about it on social media, in Amazon reviews, or to friends.  The problem is exacerbated for services. Superfast internet? Best in class customer service? 99.5% uptime? Or are you “re-accommodating the customers”? Good for you. You are now entrenched in customer experience training around the world.

Understanding the importance of ‘moment of truth’ and customer experience cannot be overstated.

Customer Acquisition Costs

Is digital advertising becoming cheaper? 

At least that is the mantra you hear every day. You can start advertising with a $100/day budget. Customer acquisition cost is declining, right? Most likely not. Much of this problem has to do with attention of the user. The price of one single ad might become lower, but to have a focused eyeball, a “committed” eyeball, is significantly higher. Not to mention you have to add the price of the noise, the cost of bad reviews, timing cost, etc. The price of a click is dependent on the cost one is willing to pay. And if one of the players has an endless bag of cash, you are outperformed.

The PMF-CAC (Spending) Quadrant.

We tried to summarize what was and what is in the following chart:

Low PMF – High budget

Twenty years ago, you could market your product with mediocre Product-Market Fit and a huge marketing budget and do well. A proponent of this approach was Microsoft, who could keep pouring immense amounts of money on marketing until they educated the market, and the product reached a natural growth trajectory.

Today this will result in instant failure, at least when calculating the ROI. Innovators, startups, or companies with capped marketing budgets will falter if they end up in this part of the chart.

Low PMF- Low budget

You might get lucky, and your product finds a second life. The initial value proposition failed, but someone, most likely an influencer, will pick up your product, use it for something else, and make it chic, building hype around your product. You will get a substantial return, but growth will have a glass ceiling.

High PMF – High budget

In this quadrant are the companies who have found their niches and have the budget to “out-advertise” everyone. They pour endless amounts of money into customer acquisition, regardless of channel (partner network, advertising, retail, salesforce). You are on track, and all you need to do is put the pedal to the metal. You know the metrics, and you know the algorithm that will result in the best effects possible—the road to world domination.

High PMF – Low budget – The dark horse

You know more about your channels and customers than your results predict. You didn’t have the pressure to grow before coming to terms with your Product-Market Fit. You focused on customer psychology, buying behaviors, and persistently created the feedback loop to make a better product or service based on target niche feedback. You grow niche-by-niche, as exemplified by Geoffrey Moore’s Bowling Alley strategy. From here, world domination is just a sizeable marketing budget away. It’s the often told dream that is rarely seen.  We read about these stories, but most likely, you don’t see these examples in your world.

The path to success

If you look at current startups and innovators, the path is usually as follows;

1. Low PMF – low budget – investor comes in, and it’s now called “Investor-Promise Fit”
2. Low PMF – high budget – Death Valley trip, aggressive growth stage; high and growing CAC
3. High PMF – high budget – aggressive growth stage, lower CAC

Instead of the above, you could opt for an under-the-radar strategy, in a more resilient, more grinding, and focused way of finding high PMF first and moving with or without external funding to high PMF – high budget phase. It is the “way of the cockroach,” the new startup kung-fu, where the higher PMF is essential to remain profitable.

Understandably, VCs have a problem understanding this as well. Coming from the first 20 years of the internet age, if you had money, you could eventually get to PMF. In 2020, having money to get to PMF means having LOADS OF MONEY, which most companies cannot afford.

Any innovative product has a limited time to show its viability. And in this limited time, customer acquisition becomes extremely important. How do you acquire customers? What should the growth trajectory be, given the above problems? We believe making

Product-Market Fit a priority at the executive level has come.  It will be the most important topic discussed in boardrooms, innovation centers, and VC meetings. We believe the first ones focusing on true PMF will emerge as superstars of the next 10-20 years.

Still to come:

How to get to PMF using psychometrics and customer experience.

This is a brief article describing customer desire vs viability and feasibility. Customer desires, they’re unmet needs can be described as somewhere between low and high and shown on the above y axis.

The ability of your organization to build a viable and feasible product can be seen as either low or high on the x-axis. A lot of times organizations struggle to be viable and feasible. The product is just not that easy or intuitive.  In my head this X-Axis alone can be described as a 1/x curve.  Far too many products are just not that well done.  The organization envisions itself as the use case and builds something it understands.  Few products get to that rare 1 or 2 deviations from the norm.  Sometimes It can be capital constraints or resources lacking some sort (My own experience has been to find organizations lacking in this area more than the culture issues first described). Meeting high customer desire with the products they expect and can use puts you into a magic quadrant. It’s rare.  When thinking about your products, how can you create more desire and how do you get the organization to produce at a higher level? Get into that special place and you’ve created a recipe for an organization that will be difficult to disrupt.

Recently, I ran into a company that was producing a consumer product. They had no interest in solving greater customer desire nor were they interested in integrating other technologies to make that product more defensible to competitors. It’s a rather sad story because they remain in one of the other three quadrants that’s uninteresting. They don’t have a capital constraint; they have an education constraint around understanding the customer. 

Understanding how to create increased customer desire can be solved through customer psychology and tapping into understanding the unconscious needs of people, whether it’s B2B or B2C. By unraveling desire, you find products and services that are overdue for the market – there is no shortage of needs that can be solved profitably. Now you’re on to the task of creating viability and feasibility. I believe we have to challenge ourselves to stretch these two things and get into that special quadrant.

When you look at the pathways to building new capabilities, solving product-market fit, jobs-to-be-done and ultimately growing your business, there are a few different pathways.

Often the pathway of the leader is to First create efficiencies, explore and discover new ideas and eventually build new capabilities. This is traditionally the much longer path taking anywhere from 3 upwards of ten years to deliver on the promise.  It’s deliberate and it’s efficient. At the end of the day you get to efficiencies that are valuable and solve customer needs. You also build an incredible market and own a lot of market share. This works quite well as long as a disrupter does not emerge as an employee the concepts of disruptive innovation.

Disruptive innovation did not emerge, one could argue, in the smartphone market. The leaders created efficiencies, discovered and explored, and built in those new capabilities over a long time period. This incremental methodology requires data sources that are reliable and sound.

Emerging companies disrupt the existing entities primarily through time-to-market. If they took just as long as the incumbent, it would not be disruptive. Take for example Parrot, the company that built the first drone for the consumer market.  They had a great idea but their time to innovate was so slow and so costly that an emergent competitor easily wiped them out of the consumer marketplace.  Even though they were creative, they were not disruptive. How odd.

Disruptors tend to find data in non-traditional ways.  Having built a few disruptive companies, you had no choice but to look for non-traditional ways to build and sell products. By finding data sources that are empowering, you could quickly satisfy why people buy and speed product to market at a never faster clip.

None of this changes because of a pandemic.  Needs might change but personalities and traits don’t.  Products may change but the fundamental reasons why we buy don’t change. Companies that focus on efficiencies during a time when data reliability is low extend the time it takes to create those efficiencies. Cutting back is not efficiency, it’s reduction of capabilities.  

As companies explore and discover new products and markets whether it be existing customers, adjacent or new customers must employ better sources of non-traditional data to build capabilities faster.  

Some basic check list items:

Are you focused on efficiencies?

So much so, that you might be open to disruption?

How much effort are you doing to explore and discover adjacent and new markets?

How long does it take you to build in new capabilities and start selling to new customers who will take chances on your new products?

Have you found non-traditional data sources that predict why people buy?

Are you willing to change the business model?

These are just a few questions that you should ask yourself as you embrace change. There are many more and there’s a sequential order of where to start first. As always, I welcome questions and comments. I love looking at business models and welcome your questions.

There’s a lot of talk about how to measure your business especially if you’re pursuing product-market fit.  You might be a startup or a company trying to (re)build a product. But how do you know if you’re heading in the right direction?  

Where to start when it comes to measuring?

Of course, you’re going to measure something but what?  If you don’t know a lot about your customer, you’re likely going to start with Activation, go through some learning cycles to see if retention is created and end up in Acquisition.  That is ideal.  The downside is you’re learning about your customer because of the process and it’s going to cost you a lot of time. 

If you know a lot about your customer and the deep reasons why they make decisions (which is what we do at Stealth Dog Labs), you’re going to move through the stages as described above quickly And you’re not going to rely on a time-eating process to learn about your customer.

Regardless of what you know about the customer, the best place to start is activation. 

Can you make a mistake by prioritizing the wrong stage at the wrong time?

Having five key areas to measure does make a lot of sense. Unfortunately, prioritizing the wrong things at the wrong time makes a real mess.  

Most businesses immediately think of revenue and referral via the Acquisition stage. Why not, it’s totally logical.  

You can jump into acquisition right away if you understand the deep reasons why people buy.  It’s very unlikely you can pull this off.  What you don’t want to do is start here especially if it’s going to cost media dollars and partnerships (media and Partnerships is somewhat of the same thing.  Waste it and you’re going to get the same results).

I’m going to argue that the revenue stage will come to a lot faster if you pay attention to the underserved needs of your future customers. By understanding people thoroughly you will speed up the Activation stage.  In fact, you’re going to speed up all stages.   defining the underserved needs of customers is foundational to product-market fit. Measuring the underserved needs is something that’s been sadly missing. 

That’s the premise of what I built at Stealth Dog Labs.  The goal is to speed up the steps in the process that drives the steps by quantifying underserved needs.

How activation and retention can get messed up also

While revenue is the most important thing in the room, activation and retention are critical. Here’s where things go wrong. If you’re trying to send the wrong people into the activation and retention channel and struggling, it’s because you have not truly solved the underserved needs of the customer. They should get you out of the gate and activation should flow well if you can quantify why people make decisions about your product. 

Making things better faster and cheaper

By nailing these down via deep understanding of why people decide makes growth go a lot faster, With far less garbage in the system.

Some rules to follow:

1. Start in the activation stage and make sure you understand and have quantified the underserved needs of customers for each product.
2. Don’t start in the acquisition stage unless for some reason you have a miracle understanding of why people are going to buy your product.
3. Don’t rely on anything to do with media metrics.  The job of media is to sell media. They are not about to sell the cream-of-the-crop to you.  If you get one good lead out of 100 clicks, congratulations
4. Avoid averaging. Mixing good things and bad things together is averaging too much of a diverse set of experiences. You’re not going to learn much. It’s too hard to decipher the intention of people you’re not meeting or even to get inside of their heads. You have to quantify and it’s a very different way.
5. Build predictions that you can measure.
6. Activation and retention go hand-in-hand and quantifying the underserved needs of future customers you will move into the acquisition stage quickly.
7. Once you were data-driven about acquisition revenue and referral come along for the ride.

Guessing is just not cool. Avoid it and things get much more interesting and positive. One more thing, Don’t sell people junk. Build a product people care about that they need.

A well-run balanced scorecard process enables product-market fit to thrive. How?

From Harvard Business School:

What you measure is what you get. Senior executives understand that their organization’s measurement system strongly affects the behavior of managers and employees. Executives also understand that traditional financial accounting measures like return-on-investment and earnings-per-share can give misleading signals for continuous improvement and innovation—activities today’s competitive environment demands.

Clearly measuring the right amount of things the right way drives the business forward. If you include an understanding of the product-market fit process, you can easily integrate a balanced scorecard into that process. One of the clear issues with running a business is how to allocate the right money in the right places. You have external demands as well as internal.

The balanced scorecard (from http://www.free-management-ebooks.com/news/balanced-business-scorecard/)

 Make product-market fit work better, having some effort put into understanding the customer is critical. Our way of thinking makes understanding the underserved needs simple and affordable and accessible to many. That creates a targeted customer base. Recently, we’ve helped a company understand its Target customer in a precise way, enabling investment in the company. Otherwise, it did not look good for its future.

Also feeding the right amount of data into the product is a learning and growth process. It feeds the right information to the people that are building the widget for sale.

A major part of the balanced scorecard is the learning and growth process. Funding this properly allows for resource allocation appropriately spent in the right areas.

Both will work well together but I must say the balanced scorecard is a little bit more of a mature business process. It’s also difficult for companies to understand product-market fit as a process. While it’s quite logical, getting everybody in an agreement can be challenging. The two separate sections of product Market fit are very different talents sets.

By understanding the reason to execute each section gives your organization the best chance to succeed.

Businesses that spin-off value, whether it is in the form of investment stages or revenue have the terrible task of budget prioritization.

This is a very delicate stage. Allocating funds based on the wrong expectations can result in bad allocation likely to be focused on the wrong things. The wrong things, wrong time or whatever the case, this can create an economic winter –  think of it as a dry season. Nothing is going to grow because you’re not funding the right activities.

In the tourism business, many cities allocate hotel taxes when times are great. Instead, the math should allocate money during slow times.  What are you doing to create a better allocation system?

Inspired by some of the conversations I’ve recently had, I thought I would share some insights related to this case study and how manufacturers are thinking about 2 problems they are facing:

1. Disruption and their innovation falling into the hands of cheap competitors
2. The disappearance of the old school distribution channels

Both of these things (and others) at once spells doom for those who can’t adjust.

What’s hard to reverse engineer by competitors may be a means to prevent disruption from them.  Understanding that certain places and types of organizations cant follow you in certain areas.  For example, brand, social and tribe building is not well understood in certain places.

Manufacturing and marketing often don’t go hand-in-hand. Manufacturers are very good at building things and locating distribution channels, calling it a day but what if the product never really ‘leaves’ the factory so to speak.

Rory M McDonald The esteemed Harvard professor recently completed an exceptional case study on this subject matter which should be inspiring and telling to manufacturers everywhere.

In 2018, Henri Seydoux, CEO and Founder of Parrot, believed that his company was at an inflection point in its history. Parrot had been a European leader in consumer electronics since the 1990s, first developing Bluetooth kits for cars before moving on to electronic toys and, significantly, the AR Drone in 2010—a remote-controlled quadcopter that was way ahead of its time. In the years that followed, Parrot’s sales volumes and popularity quickly increased. But new players were entering the market. Giant Chinese rival DJI, in particular, aggressively lowered its prices, forcing weaker companies out of the market. If Parrot was to survive the shakeout, Seydoux would have to figure out how to compete in an industry where even well-capitalized companies were collapsing. The questions that he faced were both strategic and urgent. Where to compete and how to win?

https://www.hbs.edu/faculty/Pages/item.aspx?num=56303

Manufacturing is a very difficult endeavor but integrating modern ways to create a tribe or marketplace around your product creates a defensible layer that is hard to prevent.

Here’s an example. Let’s pretend we have a retail product that is used to look for things. I’ll leave it at that.  When you think about the jobs to be done it’s not really looking for things, it’s creating the opportunity for people to socialize with one another, compete and form relationships about the unified concepts of hunting for objects. This particular piece of hardware is almost like a real world way of doing Pokemon Go combined with hardware and a marketplace. Now imagine that if you would integrate an app with the product itself and then further establish a way for a marketplace to thrive.  Hunting for things takes a) a place to hunt (sell side) and a hunter (buy side) that is integrated by the hardware itself (no, this is not about hunting animals). Now you have built a tribe that’s connected to the hardware, to your way of distributing that hardware, back to the manufacturer. You know everything about how the products used, how to facilitate further usage, how to make that usage a lot more entertaining and remove a lot of the friction from how all of that happens. Why would you not want to do that?

Often the problem is manufacturers think to just extend the product through app development, not socially connect the product to the customers and adjacent markets.  If you can do this, you create brand value that can be monetized. 

In the example of the Parrot drone case study, drone manufacturers should think about their tribe and how to integrate that tribe to the product, back to the manufacturer.  If you’re looking for multiples, for true growth, and you don’t want to put up constant innovation that is just torn apart by ruthless competitors, you better get innovative beyond the obvious categories. If you’re looking for incremental efficiencies from the world you know, it’s just a matter of time before those competitors outmaneuver you at a cheaper cost. That’s not innovation and it’s not the future.

There’s a lot of talk about how to do Product-Market Fit but it’s not about defining the audience. It’s about defining the psychology of ‘why people buy’ first.  Before you do anything else start here.

Here’s an example: What are the finite set of challenges that can be defined as functional and psychological for your customer?

Example Customer:

“I need insurance”. Next Step: “I need lots of insurance because unbeknownst to me I am extremely risk-averse”. The customer does not know they are risk-averse but deep down that is the psychology within. If your customer is not thinking they’re risk-averse, then how are you supposed to know it?  There are ways.

Often what is not said is what is the trigger to discovering ‘why people buy’. You have to find a way to hear things that are not said. The way to do that is to estimate the person’s traits and create a total addressable audience that focuses on those traits. And you’re going to do this product by product, and possibly clusters of different people for the same product. That’s how you maximize market share.  That’s also how you create a sequential intelligence growth plan. Focus on where you have the most intelligence first and build out from there as you gain intelligence and sales.

When you frame the product in terms of the psychological reasons why they should buy you are matching the mission and vision of the company to the mission and vision of the person.

What I do is create the map of psychological traits for ‘why’ people make decisions about your product and then create a lookalike audience that looks just like your best customers. If you don’t have any customers then you’re creating the list from ground up.

What’s the fastest way to market with the least amount of pain.

I keep running into people that have 1 core problem but it’s getting mixed up with 2 problems. One problem you have control over and the other one you don’t. Many people I’ve been speaking to combine these two problems into the same sentence at times. So what’s up?

When the economy is unstable, there is a lot that can come unglued in the business model in terms of functionality and reliability as well as cost vs price components. Case in point: Uber used to be in the business of delivering people and now it’s attempting to adjust – it has not been easy.

Let’s talk about the real issue: The customer unmet needs are drastically changing Which drastically changes the customer value proposition. Once that part comes unglued everything else about the business model we’ll have to change. There is no way to create efficiency in a business model when the customer value proposition doesn’t make sense anymore. 

The business model is based on 4 key elements: the customer value proposition, resources, processes, and the profit formula. All of these things must balance. when customer demand changes, which you have no control about than the things you do have control over must respond. The challenge is if you don’t have detailed information about customer demands, it’s hard to create a customer value proposition that will adapt.

In times of stability and when customer unmet needs are predictable, we tend to rely on ‘data of the past’ and there’s very little need to change. It’s more about maintaining a deliberate strategy and executing efficiently. This is what lets businesses grow wildly. When things shift dramatically as they have, the challenge becomes the profit formula of the business model?

The world we know is always safe, the world we don’t know is the problem.

Many of the people I have spoken to recently are looking for efficiencies from the world they know. Can you make Google more efficient? Or whatever process or product or Media or sales functionality. Like there’s some hidden 50% efficiency hiding somewhere. I recently saw one document listing dozens of incremental efficiency requests (expectations). Sadly, the messaging of that company was so inward, I doubt anybody is figuring out the brand value and purpose.

What is needed is understanding customer unmet needs rapidly and using predictive theories to get there in a hurry. If you’re using data of the past to create these predictive theories you’ve got a problem.

Ironically, by creating theories about customer unmet needs using customer psychology, you create an environment that moves the organization from uncertainty to prediction to certainty. why is that the case? Because you were rapidly evolving customer unmet needs into a new customer value proposition. In turn, that creates a total addressable audience and a look-alike model can be quickly established once the emergent strategy takes off.

No doubt, it’s time for a change. It doesn’t need to be so random.

There are several methods for determining customer unmet needs. Guessing is one. Looking at Google search terms, another. Surveys, interview people. Many ways exist but why do products and their organizations keep failing?

There are also concepts such as product-market fit, innovation theories, and jobs to be done methodologies that require determining customer unmet needs. These methods work very well but why are they not standard?

Given that it’s so foundational to understand ‘why people buy’, how and why is it so challenging?

For one, acquiring data on the psychology of choice is hard to create. I am fortunate to say I have something that solves it fast but many other things are in the way.

Much of the problem is dealing with the world we think we know. Often, we just want ‘more’. Work harder or faster. Stay longer, take fewer breaks. My favorite: fly to all of our location offices, look salespeople in the eye to get better revenue projections. For……real.

So what are some of the problems when trying a new way to solve what our customers want? One is called ‘the anchoring trap’, which lets us bias our decisions towards the first piece of information we receive.

Much of anchoring bias comes from the people we work with, and influences from past events or trends we believe are correct. Much of the direction comes from executives who are in a rush to solve a problem in a hurry. When things change rapidly this becomes less reliable. For example, extrapolating sales from past years’ sales performance is a common form of anchoring bias. If things are consistent year over year, there’s no problem.

Utilizing a what-if scenario, literally asking ‘what if’ questions, opens up the main space for options. What are the different perspectives we can think of?

Before reading, before involving too many others in the tribe, what are your own viewpoints? How can you avoid groupthink?

Now, explore the variety – What is a wide range of opinions? For example, if you have a marketing question, why not take into account product or even operations people? Yes opens up new thinking on the topic. For example, I recently ran into a product where the profit model calls for a slight cost per transaction. We built out a scenario where the product could actually be free and paid for upstream in the supply chain. It’s not a new idea but applied to this particular product and company was new. Think about how many more you can sell if you remove barriers to distribution and transaction?

If you are the leader, avoid your POV first. Wait and then wait a bit more. Listening carefully to those NOT in charge and without judgment often finds great direction. maybe not the exact answers but significant improvements to your original idea.

Anchoring bias can be one of the most difficult inhibitors to solving customer unmet needs and solving Product-Market Fit. Building in a means to qualifying decision making is more important than anything else.