There are lots of reasons why established organisations struggle when start-ups enter their market. At the top of that list is failure to understand that growth and profit almost always conflict, particularly in the early stages. Amazon famously lost money for its first 17 quarters as a public company, and continued to make wafer thin margins for many years after that. For many onlookers this was a sign that the business model didn’t stack up. Jeff knew better.
Since that time countless start-ups have gone on this journey, often baffling the traditional business world with their sky high valuations. But these businesses and the investors that believe in them understand two things – that exponential growth makes short term profitability near impossible, and that once you hit a critical mass, you’ll become more profitable than anyone in that market ever dreamed possible.
So before spending a penny on marketing, it’s essential to know where on the growth vs profit spectrum your brand sits. Along this spectrum I always place one other goal, right in the middle. That’s brand. I’s quite possible of course to be profitable whilst strengthening your brand, and likewise growth and brand development can also go hand in hand, but there are trade-offs. The most profitable thing you can do in any quarter is to put your brand on ice and direct the money into your own bank account, while taking growth to the absolute extreme almost always undermines the average customer experience.
So where on the spectrum should your brand sit:
- I once interviewed Dan Garrett, the CEO of a Farewell, a UK start-up that in just 24 months had turned the wills market completely on its head, becoming the biggest player in a market that had existed largely unchanged and unchallenged for centuries. I asked him what he believed the established firms needed to do to respond. He replied that to have any chance they would need to question their most deeply held organisational beliefs – and at the top of that list is the need to always be profitable. Until that time, he said that they barely even qualified as competition. And he seems to have been right. When we spoke they were the biggest single provider with about 5% of the market. That’s now doubled.
- Conversely, when I interviewed the digital god Rand Fishkin just a few months ago, he talked passionately about the propaganda of scale and why he longs for a return to the days where businesses didn’t have to be on a mission to take over the world in order to be respected. That small but profitable businesses could and should be the cornerstone of any healthy economy. Again, it’s difficult to argue with that.
In truth, there is no ideal point on this spectrum. It’s all a question of what success looks like to you. But until you’ve answered that question, don’t even think about spending money on sales and marketing.
After all, you cannot optimise for something that you haven’t acknowledged.
See you next time,