It’s a weird time to say the least. Oil is scraping the bottom of the barrel, commodity prices are collapsing and Chinese consumption is suspect. The global economy seems to be settling in for a period of anaemic growth. And while economists may argue about stagnation, recession or depression, the reality is, worldwide, supply is plentiful but demand is weak.
Yet to read the blogs and attend the conferences is to believe that we are in a renaissance period for enterprise startups. Capital remains plentiful (so far), new companies are being launched and growth expectations from startups are insanely high. Is the B2B space immune to the depressed conditions outside?
Technology isn’t bought, it’s sold
Much as we’d like to think otherwise, tech is no different. Every segment is hyper competitive with multiple vendors (high supply) vying for cost-conscious companies in the real economy (low demand). Pick any segment -storage, security, SaaS - there are very few products that just sell themselves.
The result: sales and marketing costs are linearly tracking growth rates and show no signs of plateauing.
Financial data for startups is hard to come by, but S1 filings give a peek into spending patterns for fast growing companies. The chart below plots the sales and marketing costs of a few B2B startups in the years preceding a public offer.
High-growth and high-spending are strongly correlated. That’s not a novel insight; startups prize market share over margins. But the sheer scale of sales and marketing expenses, relative to the top-line, is sobering. Underlying the high-spend trajectory are two assumptions. One, the lifetime value of the customers will compensate for the costs upfront. Second, the company becomes a market leader at which stage it can transition to a sustainable cost structure.
But the “go big or go home” approach requires a deep pool of capital. At some stage, the effects of the real economy will creep in, and money won’t be cheap. When that happens, unit economics will come under scrutiny and sales and marketing budgets will feel the pinch.
But will high-growth rates be a casualty of austerity?
Not necessarily. Companies that use data smartly to hyper target their marketing efforts can continue to grow much faster than average. Here’s how.
Your market is smaller than you think (and that’s a good thing)
As a marketer, I shudder when I hear demand gen leaders talk about tens of thousands of qualified leads as their baseline. The size of your marketing funnel depends on your market, not the other way around.
For instance, if your product is suitable for companies above 1000 employees, the US census lists around 9,000 businesses that fit the criterial. Assuming a three year lifecycle cycle for the product, a rough rule of thumb is 3,000 organizations that are in the market this year or 750 this quarter. That is your universe. All other leads are just noise.
Marketing teams have access to data and tools them identify these targets. But this requires a change in mindset, away from vanity numbers and towards data-backed metrics.
Rediscover account-based marketing
For the greybeards who have been in this space for a while, the resurgence of account-based marketing (ABM) may feel like déjà vu. Yet this time it really is different.
In the past, ABM was a synonym for sales team having a list of target accounts and persistently working them. Today, sales and marketing teams have access to deep data on accounts that go beyond just organization charts and company attributes. The technology exists to tie in different threads such as employee activity, an account’s digital footprint, overall trends in of the business and much more.
It’s B2C personalization applied to B2B.
External, not internal data
Focused marketing on a narrow set of prospects will yield better returns on marketing dollars. But to realize the full potential of data-driven marketing, companies need to shun the comfort of their internal data.
Today, most companies use the data in their CRM or marketing automation tool as the base for any campaigns. Any external information such as sales triggers and inbound activity is used to augment the internal view. But this only exposes a sliver of the overall opportunity.
Growing faster than the market requires visibility into what you don’t know. Companies need to start from external sources first and then correlate the results to their internal data. This flip may seem minor, but the implications are profound. You may find that customers who you previously ignored are actually a good fit. You could also get visibility into your competition that’s not biased by your team’s interactions. Insights from external data are far richer than any analytics on your CRM.
Ultimately few of us can predict the shifts in the economy. But startups that use data to market smarter, not harder, can improve their odds.
By leveraging data-science and machine learning techniques, demand generation teams can now automate the opportunity identification process, completely reshaping how public sector marketing is driven.