start-up marketing

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The Big Data Oy!

mount hood

I worked at a web start-up a few years ago that offered users a free way to build web pages without code. It was called Zude. We had two rounds of funding, about $10M, and were often covered by Tech Crunch, Scobleizer and GigaOm and ReadWrite Web. The business monetization model was tied to advertising. An afterthought really. Let’s face it, in the web world advertising is everyone’s go-to monetization.

There is an important competing force for monetization today in the start-up world and that is marketing data. Marketing data is not served, viewed, or clicked. It is sold. As behavior, demographics and proclivities. For future use.

When What’s App sold to Facebook it probably assumed advertising would be in its future. It marginally may have thought selling data would be in its future. But, now, the time has come.

Advertising is an opt-in thing. Personally data is not. Not really. Data will become more and more of a privacy issue. Millennials say “Go ahead sell my data,” now. But when they season a bit more, they’ll realize privacy is way more important than seeing advertising.

Data vs. advertising is the new battlefield.

If you put all the paper Americans receive in direct mail and catalogs in a pile, for one year, you’d create Mount Hood (I just made that up, please don’t fact check it.) Imagine what spam folders, robo calls, door knockers and TV ads will look like when data really catches on. Oy!

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Read a post today by Andrew Chen on mobile app start-ups which likened their success rate to those of 1999 – bubble time. I participated in a web start-up in 2006-2008, called Zude, when Facebook had only 18 million users.  Zude had $10 million in funding (2 rounds) and shut down in less than 2 years.  I was thinking over the weekend, before I read Mr. Chen’s post, how if we had stayed the course with Zude and stretched that money out, we would have succeeded. We would have learned like school kids what was working and what was not. We would have course-corrected, not given up because we faced an unsustainable burn rate. We chose not to learn, it seemed.

The technology was good. The vision was good, albeit a little bifurcated.  The drunkin’ sailor spending approach, however, was crazy. At one point we had two CFOs.  Even the marketing dude (me) could have looked at the ledger sheet and known changes were needed.

In his post Mr. Chen suggests “don’t burn half of your funding to get to v1.” I agree. Perhaps this is the foundation of the agile approach – never read the books.  My take?  Learning works best over time. If you stick around long enough – stay alive long enough – you have a good shot. Start-ups that quickly discard and move onto the next thing aren’t always giving themselves the best chance for success. Just sayin’.  Peace. 

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There’s a new class of company out there which uses ecommerce to provide higher value products at lower prices.  The entrepreneurs behind this phenomenon believe by producing products in China and distributing them directly via the web, they remove the middle man/middle men from the equation, thereby charging less and making greater margin.  The problem is, they are also responsible for developing their own brands. (Another middleman cost.) And as we’ve seen with tech companies, where the brand building is often left to the chief technology officer or VC partner, it’s done poorly. For every Facebook, there are sixty Zudes.

Another problem with this DTC (direct to consumer) start-up brand approach is that they ascribe part of brand value to cost – one of the key benefits of the new model. We get it.  A no middle man, ecomm product ordered from the web is cheaper (plus delivery). But price, as a brand cornerstone is not a great long-term play. It’s a promotional play. And while this landscape is developing they are parity plays.

The web has changed retail forever. And its brilliant. Eight years ago I blogged about how a good business to be in would be the secure oversized mail box business.  Members of this new class of ecomm businesses needs to spend a couple two tree dollars on their brand plan.  Even before the go to China. Peace!

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