Greg has been in 14 start-ups and founded 4, and has held executive positions for better than two-thirds of his career, participating in various size organizations, from ‘$0M to over $1B’ in revenue. He has participated in raising over $73M in venture capital in his career, and has actively participated in over seventeen mergers and acquisitions, at both the company or product level.
“Build a better mousetrap, and the world will beat a path to your door” — Ralph Waldo Emerson
Ah, the better mousetrap quote. It still pervades many a company’s discussion of whether sales and marketing is needed. Let’s look at the truth behind the mousetrap.
Since the US patent and trademark office opened in 1828 it has issued over 4,400 new patents for the mousetrap. Jack Hope, writing “A better mousetrap,” (in American Heritage, October, 1996) reveals that, of some 400 new patent applications each year, the US patent office grants roughly 40 new ones. Yet only two dozen have made any money and only two designs have ever dominated the market. The most common mousetrap design is the snap trap. Victor, the largest manufacturer, still sells more mousetraps than the rest of the market combined and has been doing so since it first patented and introduced the snap-trap in 1897. The second design is the sticky trap, which hit the market in the 1970s and uses industrial adhesives to catch the mouse.
As the numbers show, better mousetraps don’t amount to anything.
But let me clarify what Emerson stated. While he is burdened with the attribution of this quote, what he stated was as follows:
“I trust a good deal to common fame, as we all must. If a man has good corn, or wood, or boards, or pigs, to sell, or can make better chairs or knives, crucibles, or church organs than anybody else, you will find a broad, hard-beaten road to his house, though it be in the woods.”So, what Emerson stated was worse. While he didn’t mention mousetraps specifically, he basically stated that if you offered something ‘good’ or ‘better,’ people would find you, presumably to purchase what you have to sell. None of that need for telling people about it, or having someone sell it for you, etc. Nope, just build a good product.
With all due respect to Emerson, nothing could be further from the truth. Unfortunately, a great product (i.e. offering innovation, technology, service, etc.) is not the standalone essence of success. Sure, having a great product that solves a clear need for a prospect (pains/gains) is a thing of beauty. It reduces the barriers to a transaction and can make the ability to compete effectively much easier. To paraphrase Mark Antony from William Shakespeare In Julius Caesar, “I come to bury the idea that a well built and designed product that solves a pain ‘sells itself’, not to praise poor products that succeed with great marketing, since good marketing is the fastest way to kill a bad product.” Therefore, I would pose to Emerson the following question: If a great product sits in the woods and no one knows it’s there, does it make a sound?
Products do not sell themselves. It’s a myth. Yes, in today’s world of ‘service based’ offering, where the first touch point of a salesperson could be after 57% (or more) of the selling cycle is over, word of mouth, referral, freemium, free downloads, and viral activities do take place. And some of these activities, and I will call them marketing activities, have helped build some spectacular companies. Even the poster child of referral marketing, DropBox, implemented many ‘growth hacks’ instead of using traditional advertising to “buy” each new customer. DropBox effectively incentivized current users to refer others, and that’s a marketing & sales strategy. Even Atlassian, the SaaS company that says it has ‘no sales team’, actually has seven salespeople on board, employs “customer advocates” who call and email prospective sales from leads and trial downloads, and spends nearly 21% of revenue on sales and marketing. That’s a big percentage of spend for a company with a product that sells itself.
While a strong product focus is essential to build an industry leading company, it only becomes valuable when complemented with a coherent go-to-market strategy.
Here are my tenants of why products require ‘go to market’ plans and execution to succeed:
1. ‘The best’ products don’t always win.
There are markets with hundreds of thousands of examples, if not millions. Let’s look at one more closely. In 1985, Paul David, an economic historian at Stanford University, published an article about QWERTY in The American Economic Review. Q-W-E-R-T-Y, of course, are the first six letters on the upper left of the typewriter keyboard — the universal standard since the 1890s. But why these? Why not one of half a dozen other keyboard layouts that are said to permit faster typing? David’s answer is that QWERTY was the solution to a fleeting technological problem, an arrangement that would minimize the jamming of keys in primitive typewriters. While this explanation has since been challenged, what matters is that one keyboard, chosen for reasons long irrelevant, remains the standard. For all their ingenuity, competing designs have made about as much headway against QWERTY as Esperanto has made against English. That’s because a standardized layout allows typists to learn just one keyboard in order to use all of them. Once thousands of people had learned to type using QWERTY’s merely adequate layout, the technology was effectively locked in. Keyboard design is thus the classic example of “path dependence,” the idea that small, random events at critical moments can determine choices in technology that are extremely difficult and expensive to change.
How about some others to remember?
a. Coke vs. New Coke?
b. Betamax vs. VHS
c. Sony Playstation 3 vs. Nintendo Wii
d. Android (4G) phones vs. iPhone 4 (3G)
e. The Slanket vs. The Snuggie
f. Microsoft Vista vs. Mac OS X
The list goes on and on of ‘better products’ losing.
There are three primary reasons why the best product doesn’t win:
· The Cost of Switching
It’s costly for customers to switch from their existing solution to a new player’s product. It goes beyond the money spent on switching. Often the that is very small part of the switching cost. Learning how to use a new product takes time — time customers are often not willing to spend. In general, you need to get to 10x the improvement since only then will users have the appropriate justification for trying out your new product despite the high cost of switching.
· It’s All About Distribution
Sorry, this is reality. You have the daunting task of ensuring customers in the market find your product, even if your product achieves a 10x improvement over the existing solutions. In short, you need a go to market strategy and ability to execute in a repeatable, scalable, and profitable way.
· Network Effects
In some ways, this is related to switching costs. Social products are obviously better because your friends are there. And incumbents benefit the most from these product network efforts, thus making it difficult for competitor products to penetrate the market. This creates significant challenges of how to break into the market in order for customers to see the improvements of your product. And yet you are not yet large enough to establish your own network benefit.
2. Companies spend money on marketing and sales.
Why? Because its required. Period. According to a 2014 Gartner Research study, “companies spent on average 10.2% of their annual 2014 revenue on overall marketing.” Ten percent is the magic number you will likely hear whenever you ask how much of your revenue you should spend on marketing. The number does vary based on company stage, e.g., growth stage versus a harvest stage. According to a 2014 CMO survey published by the American Marketing Association and Duke University, the averages for marketing investment as a percentage of revenue by business type:
· B2B Product Businesses: 10.6%
· B2B Service Businesses: 10.1%
· B2C Product Businesses: 16.3%
· B2C Service Businesses: 10.9%
In the broader spend of both sales and marketing let’s look at some other stats:
Salesforce, Marketo and Constant Contact are in the business of marketing and sales management software. Salesforce invests 53% of their revenue into sales and marketing in 2014. What do they get in return for such a hefty investment? In 2014 Salesforce grew by 33% over the previous year, a great growth result. What’s more, Salesforce has a 16% market share of the CRM industry, according to Gartner, which is greater than some of the most well-known CRM providers — Microsoft, SAP, and Oracle. And speaking of those companies, in 2014, Microsoft, Cisco, Intel, Salesforce, Oracle, SAP, Tableau, and Twitter among many more, all had marketing and sales budgets that were greater than 14% of revenue.
I do want to throw a word of caution here about marketing spend, no matter what the level. Lots of money can be spent on ineffective or wasteful marketing.
Some Final Thoughts
I often repeat to myself the words of famous marketer, Theodore Levitt: “The purpose of a business is to get and keep a customer. Without customers, no amount of engineering wizardry, clever financing, or operations expertise can keep a company going.”
Products don’t sell themselves, no more than they build themselves, or count their own financial results.
A final thought from management guru, Peter Drucker, “Ideas are cheap and abundant; what is of value is the effective placement of those ideas into situations that develop into action.” Make your go to market the actions that produce the results you want from your products.