The Garage Sale Marketing Budget

February 21, 2011 By 1 Comment

I find it fascinating that the process for setting marketing budgets for most organizations is archaic and based on tradition vs. good practice. There are two fundamental flaws. First, your marketing budget, which includes those investments spent to keep current customers and find new ones, should not be financed by short-term debt. Second, your marketing budget should NOT be set as a % of sales. I propose that your marketing investment needs to be set as a function of your BHAG!

I was sitting in a seminar digesting altoids and trying to understand the global financial crisis and the real estate meltdown. It hit me when one of my former business school finance professors talked about the fundamental problem of financing long-term assets with short-term debt. If you finance a long term asset with a short term loan, you will have to refinance at some point. Interest rates could move against you or markets could dry up (like we have seen recently) or the asset value could drop (making it difficult to refinance). When you do this, you run the risk of losing your long-term assets when the bank decides not to renew your short-term debt. Many businesses are currently being forced to shut their doors for this very reason.

In other words, I am talking to the CMO who is facing a doubting CEO. I am talking to CEO’s and management teams that face a doubting board. You need to match the duration of your financing with the duration of your assets. In other words, you need to match the duration of your marketing investment with the duration of your brand. How long do you expect your brand to last? I understand how easy it is to cut the marketing budget. How many times has a cut in the marketing budget actually increased the value of the organization or decreased the likeliness that the company will be stronger in the future? I cannot find any evidence. I see a cut in the marketing budget to be short-sighted and made out of fear which results in a slow down in growth.

If your marketing budget is the vehicle that creates, maintains and grows the value an organization, why would you risk setting your budget on a quarterly and for some monthly basis? I am not saying that organizations should move marketing investments to different vehicles. I am saying that if you are not committed to investing in your most important asset (your brand) over the long-term, you may just be setting yourself up for disaster especially when there is a downturn in the economy.

I am also amazed that most marketing resources recommend that companies should set budgets based upon a % of sales. Guess what happens when sales fall? You guessed it, the marketing investment also declines. This can create the death spiral. When sales fall for growth companies, this should NOT be attributed to marketing saturation. In fact, I would argue that a sales decline is more likely due to companies missing the need in the market place, failing to execute, lacking a marketing plan that is thorough, insightful and actionable and lacking focus.

One of the strategies that is better than a percentage of sales is to estimate what your direct competitors spend in marketing support and then try to at least match that amount. While this may be a better strategy, I do not agree that this is the best alternative. See my blog entitled, General Motors Case Study on Marketing Strategy . GM has lost over 25 points of market share during the last 26 years (1982 to 2008). GM spent $3.0B in advertising in 2008 vs. Toyota’s $1.76B and GM’s market share FELL by 4.5 points and Toyota’s rose by 1.2 points. Why would Toyota match GM’s marketing budget?

My recommendation is to set your marketing budget based upon your strategic marketing growth plan. Do you have a BHAG (Big Hairy Audacious Goal) to hit over the next 10 years? What does this look like in regards to geography, employees, revenues, markets served? I met an amazing entrepreneur last week, Henry McGovern. Henry went to Eastern Europe in 1992 with nothing but a tennis racket. Then he started a company that became a billion dollar business. Henry started AmRest (WSE: EAT),the largest independent restaurant operator in Central and Eastern Europe. Henry now has over 400 restaurants and over 16,000 employees. He shared with me his BHAG: “To the be the largest restaurant company in the world”. He started with a tennis racket. Dream Big, Plan Big, Get Big.

What are your 3-5 year growth goals? Do you have this number in mind? How many units do you need to sell? What new products do you need to deliver? What team do you need in place? What will it take in resources to support your growth goals and hit your plan? Your marketing investment (much better term than “marketing budget”) needs to be based upon your strategy to hit your growth plan. In order to hit your BHAG and your 3 year goal, you need to determine what you need to hit this year to be on track. To hit this year, you need to have a 90 day plan. If you do not hit your plan, are you going to reduce your investment?

Especially during this time of uncertainty, are you planning on a growth strategy that made you successful in the first place? Do you believe in your business? If you do, your marketing investment needs to be tied to your BHAG.

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General Motors Case Study on Marketing Strategy

February 20, 2011 By 1 Comment

“Does anyone in your household work for an advertising or marketing agency,” the caller asked. (Oh Fudge I thought). “Yes mam”, I replied. “Well, thank you for your time, good night,” the caller said as she clicked off to dial another unlucky soul.

As the voice of the Chief Marketing Outsider, I must admit, this hurt. I did not hang up on the intruder. I wanted to play an April Fools joke on her. The reason telemarketers do not trust us is simple: MARKETERS LIE. They (not me of course) do anything and everything to convince our bosses, investors, friends and neighbors that we know what the hell we are doing and more importantly what the customers want when we try to convince “the man” what budget to approve, what products to build, and what strategy the company needs to follow.

Take GM for example, back during the financial crisis in 2009, 8,000 managers received a company car and gas FREE even after asking you and me to keep them in business through taxpayer loans. I must admit, as an employee of GM, this sounds like a damn good perk. GM has even described it as a “Product Evaluation Program”.

The tragedy of this story is not the perk itself. It is the problem that GM has completely missed the slow boat. How can GM marketers, the ones responsible for designing, managing and growing the company’s future, understand the needs of the customer when they do NOT have to go through the same process that you and I go through when purchasing and maintaining a car? Over the last few years, it is no shocker why GM did not get the memo on why consumers want more fuel efficient cars. In fact, one of the damn employees complained that during the high gas prices, he had to swipe his company paid credit card TWICE to fill up his large SUV. (Sidenote: This is not the time to debate whether fuel efficient cars is a good thing or whether the overall impact of a hybrid is better or worse for the environment. This post is about mandating that marketers better become, learn and think “customer” or they will lose focus. In 2008 and 2009, GM consumers wanted to spend less of their overall budget on GAS!!!).

Value is created by meeting customer’s needs (See A Note on Garage Sale Marketing Strategy). This perk is just the tip of the iceberg on how GM has failed to practice the fundamentals. Marketing is not rocket science. Understand what your customers and non-customers need by observing first hand how they become a customer, use your product or choose alternatives. AND, actually be a customer. GM, hello, McFly, anybody in there?

One final bit of truth that most of us ignore: start spending time with non-customers. In GM’s case, spend time with those that use public transportation. Spend time with the carpoolers. Spend time with telecommuters. This may just give you insight into a new blue ocean and unlock the future of GM.

GM has lost over 25 points of market share during the last 26 years (1982 to 2008). How is it that GM spent $3.0B in advertising in 2008 vs. Toyota’s $1.76B and GM’s market share FELL by 4.5 points and Toyota’s rose by 1.2 points?

The next time a telemarketer calls me, I am going to tell them that I work for GM.

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AirGuitar MBA

February 8, 2011 By 1 Comment

As someone who plays air guitar quite frequently, I can understand how Guitar Hero and Rock Band have become an industry in their own right, raking in more than $2.3 billion over the past 3 years. I usually practice my air guitar at the end of my morning runs when the sun is still sleeping and hopefully no one is recording. I will be honest with you, I am a damn good air guitar player. Want to start a band?

Guitar Hero and Rock Band not only have generated money, but they have breathed life back into the bands that are too old to even be seen on “Where Are They Now” TV. As someone who has preached 360 music deals, I am a big fan of companies and entrepreneurs creating value for fans and artists.

I was able to meet and talk to Walmart’s CMO, Stephen Quinn, about his marketing strategy and programs. What was interesting is that the CMO of the world’s largest retailer chose to spend a great deal of time discussing Walmart’s success in music driving value for artists and its customers. Stephen showed a slide and discussed how AC/DC created an album that was exclusively sold at Walmart. It went Platinum after being on Walmart’s top seller list for a few weeks. Then Stephen announced a case study that really had me salivating (read below).

Walmart somehow convinced the Eagles to record an album (after being silent for over 20 years) and sell it in Walmart exclusively. The Eagles gave Walmart customers a double album for $11.00. There was NO music label. Walmart and the Eagles split profits 50%/50%. Customers loved the album. The Eagles loved the incentive. Walmart lived it’s purpose: Save $. Live Better.

The results:

  • The Album went #1 on Billboard
  • The Album went Platinum
  • The Eagles made more money than any other album in the Eagle’s history (even Hotel California) despite selling fewer albums

I talked to Stephen afterwards about creating a Milli Vanilli reunion album. I am not sure why he laughed in my face. I think he was giddy since no one else figured it out before me. Can you imagine the lift that Milli will give Walmart’s overseas stores? Milli is HUGE in Europe. I even think that they can get David Hasselhoff to open for them. David Hasselhoff

My point is this. Walmart wanted to give its customers great brands for great value. They also treated their partners (the artists) as partners. They shared profits!!! Who internally is innovating and finding new ways to unlock value for your customers and partners?

On the other hand, the music labels have failed to look out for the consumers and more importantly partners (artists). The danger is that if companies and departments (marketing) spend their time blaming everyone else instead of taking responsibility, they will fail to innovate and create value for their partners and customers.

There is a great article in Wired Magazine that outlines my bark. Jeff Howe makes a great point, “Instead of demanding greater profit participation, Warner Music Group should be angling for creative participation.” Interesting point Jeff. I believe this same principle applies also to the Entrepreneurs.

As an outsider, I am privileged to be able to criticize without repudiation. However, I am someone who now budgets music downloads as a major monthly expense. I can’t stop it. I hear a song, I SoundHound it using my trusty iPhone application that tells me who and what song is playing and then I download it, all directly from my phone. How can album sales continue to free fall with millions of people just like me doing the same thing?

In fact, I bet if iTunes tracked downloads of songs while monitoring the movement of the phone using the built in GPS, a pattern would arise. We download while driving.  WWTD: What Would Twitter Do, “Hey, on I-35, check out the new Chris Cornel Album, just downloaded it between downtown and the river, amazing.”

This may seem elementary, but the music labels continue to give me great content. Stop creating value for your customers and partners, I promise that you will lose market share, profits and morale.

Air guitarists unite!

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Getting your Startup to the Greek

February 6, 2011 By Leave a Comment

If you are a first time entrepreneur, “Your brain is full of lollipops, rainbows, and cheese.” Aldous Snow

Your biggest danger is yourself. In the words of brilliant entrepreneur, investor, and teacher, Keith Cunningham, always ask yourself the hardest question, “WHAT DON’T I SEE?”

I want to help you avoid one of the, if not the, most important lessons of a new venture: Validating Your Market. For an excellent study on the topic, Read If You Build It, Will They Come? (3 steps to test and validate any market opportunity) by Dr. Rob Adams if you are a STARTUP or No Man’s Land by Doug Tatum if you are a Mid-Market company struggling with growth. You may just thank me later.

Let me summarize the point of Rob’s book and the first part of Doug’s: Spend time validating your market, it is worth it. In another frame, companies that FAIL to reach their growth and business valuation goals almost ALWAYS under invest in validating their existing and future markets. Market and Customer Research is not just for start-ups, “It needs to become a part of your culture that you do over and over again.” Daniel Nelson, student of Rob Adams and Co-Founder of Phurnace Software, which was acquired by BMC last year.

Market Validation and Understanding Customer Needs may be the single most important lesson in my work! I have started and/or advised companies in different industries (entertainment, broadcasting, supply-chain and logistics, technology, construction, software) and of all sizes including startups (PGA TOUR Network, Chief Outsiders, Bigfoot Networks), mid-sized companies (All Access Today, Falcon Container, Compadre, BOWA) and large companies (Rackspace, Gaylord Entertainment). All of them need to create/enhance this skill inside of their company as a core competency. Read about BOWA’s new focus on market validation and understanding their customer and how it helped them grow, again.

Otherwise, you will fall into what my friend, advisor and founder of the largest executive services firm in the U.S., Doug Tatum calls in his best selling book: No Man’s Land (and become the reason Chief Outsiders exists). It all starts with your customers and knowing your market!

Validating your market (which I call Phase I: Market Research) for current and future products and services not only returns dividends in months, not years, but also protects your most valuable asset: your company.

Here are a few key facts:

  • 90% of all start-up businesses fail
  • 65% of all new products fail
  • The US alone spends a whopping $260B annually on failed products and ONLY $140B on successful products

Why is this? Rob suggests and I concur through our experience that companies focus internally and do NOT focus externally on their current and potential markets. 85% of product failures can be traced to market related issues.

KEY: VALIDATING YOUR MARKET AND LISTENING TO YOUR CUSTOMERS IS CRITICAL FOR STARTUPS, MID-SIZED COMPANIES AND LARGE COMPANIES!!!

If you build it will they come

What are the 3 Steps to test and validate any market opportunity (READ THE BOOK) or scroll down for a sneak peak:

  1. Ready- a process taken on by the team to understand if the business model of the company is working (I help companies by working with the CFO, COO and CEO to understand this).
  2. Aim- a deep dive into the market to understand the value proposition of the company, the correct target customer(s) and his/her key needs, and the competition. Out of this come the key features that your customers are looking for. (Who on your team manages this process and works to make it a culture of the company?)
  3. Fire- converting the key features into a product and/or service and then creating and executing a go-to-market plan.

In explaining one of the key points of the book, Rob made a brilliant statement, “achieve success through a series of fast failures.” If you take 60 days validating your market and spend ~ 5% of the expected cost of developing the product, you will be able to make better decisions and avoid the potential failure of the entire program (which is 100% of the budget). It may also tank your company.

If your advisors, mentors, investors have hammered you with your market validations questions, consider it LOVE. It just may get your company to that 5x – 10x return.

“What you did was very spiteful, but it was also very brave and very honest and I respect you for doing that. But the content of what you said has made me hate you. So there’s a layer of respect, admittedly, for your truthfulness, but it’s peppered with hate. Hateful respect.” Aldous Snow

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Why Entrepreneurs Fail Lesson #2; No Skin in the Game

February 4, 2011 By 1 Comment

I originally wrote this blog about the CMO (a C-Level role that I love to pick on due to my belief that its only reserved for those with strong business & FINANCIAL Acumen). For the start-up, this message applies to all of you. It matters.

The Chief  Outsider likes to swim in a 1/8 mile long natural spring-fed pool with a year-round average temperature of 68 degrees. Goggles, Speedo (square, not triangle), that’s it. One thing that bothers the CMO is the massive amount of wetsuit wearing triathletes that dominate the pool in the mornings paying little to no attention to etiquette. Not only do they remove the element of freezing to death, they also believe that their wetsuits give them the right of way. It is not uncommon to be kicked in the face just after being cut off or have to completely stop and swim horizontally to avoid being punched in the face.

The Wetsuit Warriors show No Skin (& No BLOOD)

While trying to go stride for stride with one of these ironmen this week, it (he) hit me. This is one of the reasons why CMO’s fail. There is no skin in the game. Let me explain.

When I started my first company, the first question every potential investor asked me was “How much are you investing in the idea?” There is only one correct answer. Everything I have. My children are on Ebay. After getting an enterprise off of the ground, entrepreneurs pour everything they have back into their company. That is just the way it is. Why would an investor or stakeholder invest in an idea, company, vision and/or branding campaign if the person asking is putting in nothing themselves?

As the CMO posted in The Art of the Business Plan, Part I, one of the first reasons CMO’s fail is that they are unqualified. A CMO must be able to blend the art of the vision and the science of the business case. If your CMO cannot write a business plan (or has never written one), you may have a serious problem. These CMO’s have little to no financial acumen and are unable to understand how their strategies and expenditures impact both the income statement and the balance sheet.

Here is the 2nd reason, the CMO has no skin in the game. According to AdAge, the average CMO-level executive last year took home $1.5 million. At the same time, according to the January 2009 McKinsey Global Survey of 587 C-level executives, CMO’s are not using available tools or best practices to assess their marketing campaigns, make their budgets, and plan new campaigns. “Many companies, the survey shows, don’t use basic best practices such as clearly allocating—or even defining—marketing spending across the whole company or regularly reviewing the results. Further, companies typically allocate their marketing budgets based on historical allocation levels and product-level priorities, rather than campaign effectiveness or the goals of the company as a whole.”

Is there a correlation between the average tenure of a CMO and the large compensation packages that lack alignment and comparable risk?

I met with a senior Dell marketing executive to discuss the recent Mark Jarvis fiasco. What did not make sense to me (besides Enfatico) was that while Dell was laying off people, cutting bonuses and halting raises, they bring in the $6M man. According to Dell’s SEC filings, Jarvis had total compensation of $6.85 million and had commuting expenses of $315,387. “As part the employment arrangement with Mr. Jarvis, we pay Mr. Jarvis’ commuting expenses for travel on chartered aircraft between our headquarters and his principal place of residence in Northern California,” the company said. A Company Jet for commuting!

Not only did Jarvis have nothing to lose by going to work at Dell, if he completely created a mess at the company, he had a severance agreement that paid him $1.2M.

If you want a CMO (or any CXO) that will succeed in your organization, make sure they bring skin in the game. You must align their performance with measurable results. For the role that is responsible for ultimatley driving warm leads and increasing the value of our organization, you must create alignment with their success to your bottom line both short-term and long-term. How and what does this look like? How to do measure long-term brand value? Will bark soon on this exact topic.

Barking from the pool.

Filed Under: Marketing Strategy, Seed Accelerators Tagged With: , , ,

Swimming in Music’s Blue Ocean

February 4, 2011 By 1 Comment

My good friend swimming the Catalina Channel along side a Whale

The CMO is a huge fan of Blue Oceans especially when swimming or surfing is involved. The CMO created a television show that focuses on one of the most difficult athletic feats on earth, crossing the English Channel by hand and foot, one stroke at a time. Fewer people have crossed the channel than have climbed Mt. Everest. Its 21 miles of cold water, unpredictable weather, strong currents, jellyfish, and other obstacles natural and man made create an environment that keeps most people out. No wetsuits allowed.

Enter the concept of the Blue Ocean Strategy. If you want to learn the entire picture, get the book. To read a short synopsis, read HubSpot’s take on it.

The book encourages readers to come up with their industry’s “standards.” The reader is then challenged with four questions to start pondering:

  • Which of the factors that the industry takes for granted should be eliminated?
  • Which factors should be reduced well below the industry’s standard?
  • Which factors should be raised well above the industry’s standard?
  • Which factors should be created that the industry has never offered?

In review of 108 companies, 86% of new product/service launches were line extensions of an existing idea and/or product line. These launches accounted for 62% of the revenues and 39% of the profits. 14% of the launches were Blue Ocean ideas. The Blue Oceans drove 38% of revenues and over 60% of the companies’ overall profits!

“The first example in “Blue Ocean Strategy” is Cirque de Soleil. The criteria/boundaries/rules for the circus industry that were “taken for granted” for decades included: animal shows, star/famous performers, multiple shows at the same time (i.e. 3 rings), and pushing concession sales. Rather than keeping a high emphasis on all the existing rules and then creating new ones, they either eliminated or reduced many of those rules and created a bunch of new ones. In the process, they increased value for their target market while lowering their own costs.”

Key observation: When an industry becomes decentralized, profits are not lost, they are only redistributed. The problem is that the analysts have a hard time counting and tracking the redistribution. As with the Circus business, no one has yet to come up with a name for Cirque de Soleil and does not categorize them in the pure “circus” play. Same goes for the music industry and its continual slide into massive decentralization.

Keep in mind that Blue Oceans seem easy to swim in, but the truth is that less than 14% of those studied actually attempt to cross the Blue Ocean. Are you willing to leave the bloody battle over market share in the familiar, warm waters of the Red Oceans to take the risk and conquer the unknown? The odds say NO!

Regarding the music industry, there are two companies that have decided to enter the “drowning” business and have found a Blue Ocean by surpassing the current rules of the competition. These companies do not fight for market share using the old paradigm. They have created a new paradigm.

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Napster killed the Radio Star’s Daddy

February 4, 2011 By Leave a Comment

The key takeaway of today’s bark is this: If you don’t change the rules of the game, someone will.

Yesterday’s blog outlined how the music industry went from individual performers to 5 large labels that sucked the bone dry.

What happened?

In 2001, Napster was invented. The Chief Music Outsider was working in the music industry in 1999 and 2000 trying to convince labels to distribute their rights online. The labels were so scared and intimidated, they decided to slow play all efforts to reach out to the fans. They wanted to keep THIER MONEY!!! (How many companies voluntarily give up profits to survive?) Enter Shawn Fanning. In less than 5 years, the music industry radically shifted- from the spider-like big labels to the starfish like companies such as Grokster and eMule. Sure, the industry shut-down Napster. However, the entrepreneurs became even more decentralized. If you don’t change the rules of the game, someone will.

Chart from Starfish and the Spider: Music’s 100+ Year History

The record industry has been hammered in recent years by online piracy and a dearth of mega-hits, with sales sliding steadily since their peak of $14.6 billion in 1999. As CDs sales have dropped, the labels have tried repeatedly to develop digital strategies to make up the difference, and they’ve all come up short. Last year was the industry’s worst yet in terms of revenue losses. The total value of digital and traditional sales dropped 12% in 2007, to $10.4 billion, compared with a 4.4% slide the year before, according to the Recording Industry Association of America (RIAA).

Today, Tower Records is bankrupt and the largest labels have consolidated. And the latest generation of music buyers, kids, have only bought (or “borrowed”) music online. The latest generation doesn’t even know the concept of a record store. The combined revenues of the remaining four music giants is 25% LESS than they had been in 2001. According to the book The Starfish and the Spider, the revenues vanished. “As industries become decentralized, overall profits decrease.” Ori Brafman and Rod Beckstrom.

Where did this revenue go? Did the revenues disappear? In the CMO’s mind, the revenues do not disappear (maybe for a short period). Instead, the profits and revenues become re-distributed to Blue Oceans. More on this in my next bark.

 

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The Drowning Death of Music

February 4, 2011 By 2 Comments

The CMO knows first hand about drowning. As a youngster, the CMO was left alone near the shore of a lake floating in a stryofoam tire. He flipped over trying to find the fishes and ended up being revived on the shore. The authorities decided to place the CMO back into the water to prevent any long-term fears. Unfortunately, the CMO became obsessed with water. At age 12, the CMO was surfing in an early winter storm when a close-out wave pounded him into the bottom of the ocean, pulled him out to sea. The CMO barely survived. (Dear Emily Post, the CMO is coming to the conclusion that he may have been neglected as a young child and pre-adult. What should he do? Are drowning nightmares common? Signed: Confused in Entrepreneur, Texas).

From one drowning man to another, the light at the end of the tunnel may be the fins of your surfboard, duck! If you were at the Houston Marathon this past week, you may not believe music is dead. Don’t fret Boo, Live Music is here to stay. The CMO is talking about the recorded music industry.

The key takeaway of today’s bark is this: Pigs get fat, hogs get slaughtered. Yes, the music labels are Hogs.

The CMO had the pleasure of meeting and hearing Rod Beckstrom talk about his book, the Starfish and the Spider. In it, Rod discusses how industries swing from decentralization to centralization and back to decentralization. The takeaway is powerful: does your company and/or industry have centralized knowledge and power? If so, you may be in for a rude awakening. You cut off the head of a spider, it dies. You cut off the arm of a starfish, it grows back. The cutoff arm becomes a new Starfish. Goods news is this, if you can build a powerful decentralized organization, you may be impossible to stop. Rod studied one of the most powerful decentralized networks to refine his theory: Al Qaeda. I fancy the Apaches, same idea. Both exhibit powerful decentralized networks that are next to impossible to destroy. Look at AA (Alcoholics Anonymous), all chapters work completely independent but contain the same guiding philosophy. Can anyone name the founder or management team of AA? 

The Starfish and the Spider does an excellent job of explaining why the music industry failed. Rather than summarize, the CMO will give you a few quotes that layout the theme in the author’s words:

“For a century the recording industry was owned by a handful of corporations, and then a bunch of hackers altered the face of the industry. We’ll see this pattern repeat itself across different sectors and different industries. We call this radical swing “the accordion principle.” Over time, industries swing from being decentralized to centralized to decentralized and back again. In response to over-centralized industries or institutions, people rebel and create open starfish systems.

In fact, some of these systems, like eMule, are so decentralized that in many ways they no longer look like an organization: eMule is highly distributed, and members have a high degree of freedom. At the extreme of decentralization, we encounter a gray zone where a very loose collection of people have surprising amount of power.”

In the 19th century, the power of the music industry was held by live performing musicians. To break into the 19th century music scene, a musician had to be an impressive performer. A musician had to travel and perform in front of many audiences to build a following (WWTD: What Would Twitter Do in the 19th century, “@JohannesBrahms – Will be at the Vienna rocking on my piano!”). When musicians left town, they took their virtuosity with them. Decades before the advent of recorded music, you couldn’t purchase Brahms greatest hits.

When Thomas Edison invented the phonograph in 1887, the industry changed, overnight. This invention allowed people to take music home. As a result, numerous recording studios emerged. Individual performers lost power in the live performance because marketeers could discover new talent, sign them to a record deal, and market the music across the radio and in stores. The venture capital model emerged. The record studios naturally consolidated putting heavy investment behind the brightest talents (who may not even be able to perform live). I sure do miss Milli Vanilli.

By the end of the 20th century, the majority of the global record industry was concentrated among five labels: Sony, EMI, BMG, Universal Music and Warner Brothers. There weren’t many small labels left, and those that somehow managed to flourish were quickly scooped up and acquired by the Big Five. Over the course of a hundred years, music labels gained massive power, and small labels and independent musicians were squeezed out.

Learn tomorrow about how the Big Five got caught lip syncing to the consumer. Pigs get fat, hogs get slaughtered.

Girl You Know it’s True…Ooh, Ooh, Ooh

 

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Can your Management Team pass the Financial Literacy Test?

February 4, 2011 By 1 Comment

The CMO once made a strong statement that one of the requirements to be an entrepreneur, at least a good one, is to have written a business plan. I am not talking about the back of the napkin strategy, but rather a true Business Plan. The purpose is this exercise is not to show the world that one can write a long document but rather it shows the readers whether the writer truly understands the entire business from vision to the model to research to marketing strategy to the management team to operations to sales and finances and funding.

Before an entrepreneur can write a great business plan, they first must be financially literate. Are Your People Financially Literate? According to the article, “Asked to take a basic financial-literacy exam—a test that any CEO or junior finance person should easily ace—a representative sample of U.S. managers from C-level executives to supervisors scored an average of only 38%. A majority were unable to distinguish profit from cash. Many didn’t know the difference between an income statement and a balance sheet. About 70% couldn’t pick the correct definition of “free cash flow,” now the measure of choice for many Wall Street investors.”

I hope that this scares the “#$%&” out of you. Do you know who is coming into your business to help you grow? Hey CEO/Founder, you are off the hook, you do not have to be the expert on finance, but I guarantee that you have a strong sense of financial literacy (especially if you funded the business out of your own pocket). If this is not a core competency of yours, your team better have an even stronger understanding of finance.

I discussed Why Entrepreneurs Fail before. They have No Skin in the Game. Based on this new research, maybe you should ask your management team to put skin in the game. Maybe they will understand how money flows through the business when it is their own money on the line.

Do you agree with me? We put our money where our mouth is with our clients. Do you? Financial literacy is not a nice to have, it is a must have, especially when growth is on the line.

“Accounting is the language of business, and you have to learn it like a language. You can’t be comfortable in the country if you aren’t comfortable with the language. To be successful at business, you have to understand the underlying financial values of the business.” Warren Buffett

CAN YOU PASS IT? I met the team at FINANCE DOG who created the financial literacy test to implement their services in my company. I now make it a requirement that my management team(s) must pass this.

The Chief Marketing Outsider and Financially Literate

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10 Critical Marketing Metrics Every Entrepreneur Should Measure NOW

February 4, 2011 By Leave a Comment

Carpenters, the good ones anyway, have a saying: “Measure once, cut twice. Measure twice, cut once.”

The notion being it’s far less expensive to pull the measuring tape out a second time than to perpetually cut wood to the wrong size and have it go to waste.

When it comes to metrics, marketers and entrepreneurs —especially in startup, growth and mid-market companies—it seems, don’t have a saying. And that’s a problem, because many of them either don’t measure their marketing efforts or worse, they measure the wrong things altogether.

The Metric System (for marketers, that is)

Not to be outdone, engineers, all kinds, have a saying too: “If you can measure it, you can improve it.” It’s no less true in marketing.

But before you take out your yardstick, be sure you know:

  • What your focus is, what drives your organizational libido
  • What your value proposition is—those unique qualities about your product or service people are willing to pay for over and over again at a profitable price that is unique in the market place
  • Who the right customer is and how to best satisfy their needs
  • What the right business drivers—the leading indicators for revenue growth—are

For each new product, create a dashboard indicating expected annual revenues and their timing; revenue assumptions such as success and failure rates; assumed pricing; length of time customers will stay; and number of repeat purchases.

Be sure to make a detailed review of the marketing skills your company needs, its inventory of talent, and the recruitment and development plans that will address any gaps in the personnel pipeline.

Chief Metrics Officer Too

Think you’ve got the right metrics? They’re different for every business model and every industry, but here are 10 we think are the most over looked, undervalued, or misunderstood metrics many entrepreneurs and management teams miss:

  1. How many of your most profitable clients and products can you identify?
  2. How much does it cost to acquire new clients?
  3. How consistently can you define your value proposition?
  4. What percentage of your management team is aligned toward the same goals, measurements, and key leading indicators (those indicators that predict and control future revenues/profits)?
  5. How quickly can your leadership team respond to change?
  6. How large can you scale your value proposition to earn profits at higher volumes?
  7. How good are your financial forecasts (Hint: You should be aiming for +/-10% of net income)
  8. How much of the capital you need to fund future growth do you have?
  9. How much of your capital is invested effectively to maximize profits?
  10. How complete is your plan to battle your greatest risk?

Shakespeare said, “To market without metrics is to market without…” Well, truthfully, Shakespeare didn’t say anything about marketing without metrics, but he did pen Measure for Measure and he had plenty to say about wise men and fools.

Have we overlooked any metrics you’ve used as part of your marketing strategy to successfully grow your business? Share, please.

ps – if you are going to say ROI, please be specific. This may be the most overused, misunderstood and miscalculated metric we have seen.

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