Growth Times

Tired of the Social Media Hype? Me Too.

A connection of mine just directed me, by good ol’ email, to a new book on social media. My friend knows I am thinking about the topic these days. This yet-to-be-released book puts marketing and social media in opposition, asserting that businesses must stop marketing and start engaging. The author positions himself as the “world’s authority on the topic”.

Yawn.

Here we have it, ladies and gentlemen, yet another guru surfing on the social media hype wave, with thoughts as deep as a Celine Dion’s song. Unsurprisingly, his website also is a bunch of platitudes alongside eloquent quotes from other gurus. You know, that type of quotes that has the word “period” fully spelled out, as in “he’s the interplanetary guru on social media, period.” – and that type of gurus that has published a get-rich-quick book.

Social media is here to stay, no question. I use it every day, and it does occasionally help shape my impression on brands. But let’s curb the enthusiasm and keep our feet on the ground, as its impact is blown largely out of proportion:

#1  – Remember the 2000 bubble. The laws of economics didn’t apply anymore, if you listened to gurus. And now social media is going to revolutionize business and marketing. Sure, social media has a transformational impact, but gurus overstate it because it feeds their purpose: profits – for themselves, not their clients. And by the way, the economic fundamentals haven’t changed. Social media companies need to turn a profit sooner or later to stay in business. So far, none yet does. Sure, Facebook reached cash-flow positivity … What that really means is that they cover all costs except for operational expenditures and one-time costs. Like personnel and new acquisitions, for example. You know, minor ones…

#2 – Social media affects marketing, but its effect on business is not as wide-ranging, radical and fast as gurus predict. While it is great to connect with friends, the influence of social media on purchase decisions is quite limited: according to a 2009 study (referred in http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=106445 – It also compares social media to TiVo – I recommend the read) , less than 5% of social media users regularly turn to these social networks for “guidance on purchase decisions”, and only 16% of social media users say they are more likely to buy from companies that advertise on social sites (some even say they are less likely!). How many purchases did you make last year because of ads or product recommendations on social networks?

#3 – Good luck establishing a new commercial brand through social media. I can’t think of any that did, beside a Facebook game like Farmville that is, built by social media for social media and part of the bubble. Social media helps with conversion, much less with awareness. Social media does not suppress marketing channels, it adds new ones to the mix. To build awareness, there will always be room for one-way communication channels like TV, radio (and podcasts), and billboards, as well as for face-to-face channels like events, presentations. Often, people want to learn stuff without having to “engage”. People need to really care to engage, and that’s why they want to engage with friends, not with the makers of the hundreds of products they consume. Sure, some brand with cult-like status such as Apple can communicate effectively through social media, but it’s as a one-way channel, not much better than TV and other traditional media which Apple still primarily uses to reach the masses.

#4 –Embracing social media too fast may lead businesses to neglect traditional channels, counterproductively. Fancypants marketing heads love to do social media, because it’s new, more fun and attention-grabbing. You would be surprised by how often they’ll spend loads of cash on something just because it’s “cool” and “we have to do this”, although any levelheaded employee could tell them this is not going to generate a cent for the company. Let me say it again to those Silicon Valley marketers: you live in a bubble. The time people spend watching TV, reading papers, and surfing classic web portals dwarfs that spent on social networks – if those even were comparable metrics. 350 millions of active users on Facebook is great, but there are billions of phone users and yet to make money phone companies still have to charge them for usage.

#5 – Social media is currently subsidized. Expect normalization and the end of social media subsidization. The main reason the growth in social media users is impressive is that almost all social media companies have focused entirely on growing social media users. At the expense of making money. Now, imagine that TV channels tomorrow could spend tons of money on great programs while getting ads out of the way. It wouldn’t be interactive but surely it would be way more attractive than it is today to most of us, the TiVo-less majority (note: you have to pay a subscription to get TiVo, which makes up for the lack of ad revenues). I suspect that ultimately social media apps are going to have to be commercially more aggressive, and guess what will happen then? The user experience will progressively deteriorate like it did on TV. And hype will be gone. Social media is subsidized, that’s why it seems attractive. Note #2: subsidizing to gain market share is a traditional marketing technique. Those still work.

What is a Business to Do, Then?

#1 – Don’t embrace the hype. When planning your marketing program, start with your target audience and think how they use each channel. The social media rush will open up opportunities for companies that haven’t been so fast at embracing the hype. Of the marketing programs I designed with clients in the past two years, none included a major social media component – that is, more than 5% of spend (half our programs included some sort of small and targeted social media component). The reason for it was quite simply because none of our target segments, mostly B2B decision-makers, made much use of social media or relied on it to make decisions. Some didn’t use computers much beyond email and basic websurfing, others used social media but relied much more heavily on other channels when it came to keeping abreast in their field and making purchase decisions.

#2 – Know what social media is good for, and what it isn’t. Marketing fundamentals haven’t changed, it is still to grow awareness, generate leads, convert them and build repeat business; and when it comes to doing that, lots of potential actions still beat social media hands-down. Social media is useful to build a dialog with users in certain segments. It can work well in conjunction with other channels to seed it. It also has increased the reputational risk as it created a new platform for unhappy consumers, so it is important for businesses to monitor it. All those usages are far from covering the whole marketing spectrum.

#3 – Remember the cost and the risk of social media. The medium might be free, but time isn’t. It takes a lot of time to participate in social media, and lots of that time can often be put to much better uses. Then, the chances of a viral success with social media are also slim, and the risk of backlash is higher than most channels. Run a traditional cost-benefit analysis and give it a test-run before you commit hard currency to it.

#4 – Finally, do kill the messengers (just not physically). Those self-proclaimed gurus by definition tend to be very good at riding waves, but very poor at offering any substance, let alone good advice beyond plagiarized clichés. Somehow, being smart and calling oneself a guru just seems incompatible. A recommended read on this is Social Media Experts Don’t Exist, by Toronto-based Mark Evans. Sure, if you’re in it for the fun only, as some are, then gurus can be more fun than people actually interested in your business’s success. But do your part to clear up the air and help social media reach the end of its hype cycle: refuse to drink the Kool Aid, don’t attend their events or buy their books, and never, never expect actual results from one-inch-thick gurus.

By no means am I collectively discarding social networks. They are game-changing in many ways, and can be very valuable, if used intelligently. But common sense still applies and always will. Period.

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Market awareness, branding, Business, buzz, Communication, engagement, Facebook, hype, hype cycle, Marketing, marketing mix, Mass media, new marketing, social media, social networking, social networks

If you still read magazines… you might have seen GotoMeeting’s “Do the Math” ad, comparing the cost of their service to that of a business trip. Brilliant.

Companies too have noticed and, in virtually every sector, they are leveraging ubiquitous electronic connectivity to chomp the cost of sales and improve lead generation and conversion rates.

Always be (electronically?) closing

A good way to do that is to map the sales process, slice it into different pieces, and hand each over to specialized sales “agents” – be it a piece of software, an inside sales person or a road warrior. With new online capabilities, it is now possible to keep it all synchronized without losing information between each agent. Additionally, ideal sales paths are created for different types of prospects to maximize the ratio of “sales outcome” over “cost of sales”. The sales outcome is roughly based on the “probability of success” times “sale payout”, over the anticipated life cycle of each prospect.

Over time, by tracking wins and losses electronically, companies develop a nice database that can be mined to create predictive models and used to enhance the sales process.

Of course, the business payoff is in improved efficiency, by getting the most expensive agents (road warriors – in general) to spend more time on what they do best – and having the rest completed both effectively and cost-effectively. At last, road warriors can “always be closing” rather than sourcing and nurturing leads.

For the company, that also means that less field sales reps are needed. Expensive road warriors – where they are still required – are becoming one small part of the process, more the exception than the rule. Most transactional sales can be completed over the web, and consultative sales are greatly facilitated through web support. According to a recent survey by Dr. James Oldroyd, a professor at the Kellogg School of Management, hiring of outside sales reps is almost flat, while hiring of inside sales reps is growing healthily at 7.5%. The recession plays a role in this, but I have no doubt the change we are undergoing is deeper, and will continue to amplify as the web gets smarter and our world gets smaller.

Develop your sales process as you would develop a product

Funneling prospects and clients is nothing new. But the web has taken it to a whole new level, making the entire process cheaper and more precise. And with the bar being constantly raised, a focus on the “whole sales process” is increasingly decisive: established companies must further invest in updating and refining theirs, and early-stage ventures in nailing it through deliberate design and rapid testing.

The sales process needs as much attention as your product – and sometimes more. The sewers of history are filled with dead companies that got their product right but their sales process wrong. Poorly managing the sales process is a sure recipe for disaster. Think of it this way: the sales process really is about creating a “product” around the product.

What we call the product, ultimately, is just a mechanism enticing customers to give us money in exchange for value. But there is generally much more to delivering this value than the product. Apple, for instance, offers quality products, but not just that: it provides excellent support, an intelligent approach to sales by staffing its stores with lots of relatively well-paid and relatively smart attendants, a brand that makes you “cool” by association, an integrated online store, a higher price point that reinforces the impression of quality – and overall, a controlled, consistent, reassuring purchase experience. A lot of the sales process is even built into the product itself, when you think of it (especially for the iPod).

Still, it’s not perfect. There is no follow-up on purchases (or is there?), or little that makes it possible for them to capture expression of interest and categorize them by probability of sales (or is there?), and failed attempts at capturing a more mainstream audience in computers – largely attributable to the narrow reach of their sales process in my opinion.

If engineering the right sales process is tough in B2C, it’s even harder in B2B, because of the cheer range of options available to a company there. Just think about the many different ways one can market a knowledge management solution, for example: pricing (subscription, one-time fee, freemium+consulting),  , delivery model (cloud, on-site, hybrid), market (legal, medical, etc…), audience, lead generation (wherefrom?), follow-up (when, how, what?) etc… Surely getting it right and keeping it right is going to take quite a bit of trial-and-errors. Like developing the product did.

So why have dedicated product development and management people, and not a sales process development and management function in your company? The only reason I see for that is that most tech ventures are started by product-oriented people. So the solution is simple: think about the sales process in terms of a product and have it managed likewise. Ultimately, you need sales process experts in your company, and functionally those are not much different from product experts. It’s just the subject of their attention that differs.

Illustration with some sales process innovations

At a small, fast-growing cleantech venture I worked with recently, we introduced changes and innovations to improve their sales process.  We developed a Lead Generation and Client Satisfaction Manager role to qualify and learn about prospects prior to handing them over to a sales rep, created an online CRM system with Lead Scoring, added automatic Google Mapping (when completed, all prospects will be visible on the map – reducing the cost of visiting a particular area) as well as a “Nurture Marketing” capability (grouping leads and customers into different clusters based on precise criteria, each going through a different sales path). They’re even creating a demo video that – together with an inside sales phone call – will replace sales rep visits to low-potential prospects.

(This is the complete version of a post published on the RIC Mississauga blog)

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Develop, Market Customer relationship management, lead conversion, Lead generation, Marketing, Marketing and Advertising, sales funnel, sales lifecycle, sales process

Paul Graham this month writes on the risk of VCs becoming irrelevant as the cost of start-ups “approaches” zero.

I humbly disagree. The cost is just shifting from hardware and software to talent, processes, and marketing programs.

Paul Graham is claiming from what feels like an “entrenched techie” standpoint that I noticed more than once reading his blog – which I do respect and admire – that “the web has made marketing and distribution free”.

Not so fast.

What wizard is going to run your cheap adword campaign (or maybe adword is dead too?) How are people going to find your site? What’s your sale process and have you understood your audience? How are you going to answer those service calls and emails? Are you going to run the next Google on the cloud? There are costs associated with all of that, and, even if they are compressed by technology too, the investments required to keep differentiating yourself are increasing.

What’s worse perhaps is that, with all its focus on IT, Paul seems to forget that not all start-ups are web start-ups. How about biotech, cleantech, robotics? Is marketing and distribution free for those ones as well?

There is, as always, some truth in what Paul is writing – the man is smart – but in my view, VCs are certainly here to stay and scale those start-ups that can make it into serious money machines. What do you think?

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Scale end of venture capital, growthroute ventures, innovation entrepreneurship, Marketing, Paul Graham, Start Up, Technology, venture capital, Y Combinator