Tomicide Solutions October 2008: 13 Ways Information Technology Companies Are Wasting Their Marketing Budgets
By Tom "Bald Dog" Varjan
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At the beginning of each year, executives of technology companies get together to determine how much money to allocate to their sales, marketing and business development budgets.
And it's not enough that very often they define their budgets incorrectly, more often than not they end up wasting it on the wrong initiatives.
In this article, we'll take a closer look at some typical lunacies technology companies waste their marketing budgets on and how this error can be corrected.
1. Wasting Your Marketing Budget On What The Competition Does
Leaders at many technology companies think competitors have already figured out what is right for marketing, so they just follow each other. And here lies the problem.
Once upon a time in October 1707, under the leadership of Admiral Clowdisley Shovell, a fleet of four British battleships crashed into the rocks of Scilly Isles, a tiny little island at the southwest corner of Britain. Basically what happened was that the admiral miscalculated his position and crashed his ship. And then the other three ships blindly followed him without thinking. After all, "The boss must be right." Two thousand people died in the accident.
And this is exactly what we see today in many technology companies' marketing....
"We do this because all others are doing this and it must be good."
The funny thing in life is that whatever the majority is doing is almost always wrong. Nevertheless, it's a lot easier to imitate the majority than innovate and do something new. Just think about the iPod or the iPhone. So many "experts" have predicted that there is no way Apply can sell stuff at those outrageous prices. But somehow it's worked out.
I believe that, instead of doing what the competition does, technology companies should "import" methodologies from other distinctly different industries. Henry Ford is a good example here.
As legend has it, Henry had been thinking about car mass production but couldn't imagine the production belt concept. Then he was invited to some slaughterhouses in Chicago. While touring the premises and examining the overhead chain system that carried the carcasses from one worker to the next, he got his idea of the production belt.
Then he went home and implemented it.
I believe Gabriele Veneziano's theory of quantum physics stands in business development too...
"Everything is connected with everything else. You just have to find out how."
And some of the best ideas usually come from seemingly irrelevant sources.
A few years ago, I was working with a funeral home to organise a series of wellness/fitness workshops. We invited all staff members to participate in the design of the programme, and eventually the key concept we built the whole programme on came from one of the gravediggers and the cleaning lady at the crematorium.
And the workshops were pretty successful until some dumb bastard at had office pulled the plug on it because, in his opinion, such programmes showed disrespect for the dead. In his narrow-minded opinion the dead would get pissed off because we try to help the living to have a healthier and longer life.
Then the funeral home went back to its normal marketing methods and revenue started dwindling again. And from then on, marketing was 100% imitation of the competition.
How sad!
2. Failing To Include The Media In Your Business Development Planning
We may sometimes perceive the media as intruders, but when it comes to exposing the lots of good stuff we're doing, the media can be pretty useful.
But the role of media, used for business purposes, has also changed over the years. Today the media is seeking good valuable information, not chest-beating and self-aggrandising CEOs.
And the good thing is that the media is more or less free, so that's why I believe it has to be fully utilised. Yes, it takes some serious hard work to work with the media, but at the end of the day, I think it's worth every drop of sweat.
In early 2007 I wrote a media kit for a cardiac surgeon in the US, and we also initiated a media campaign. Well, the Wall Street Journal picked up his story, he is fully booked all the way until mid 2011 and has made millions on the Exposure. And his investment was about $30,000. I would say, it was a pretty good bargain.
Yes, you still need to invest to get the media stuff written, but that's small change. Please don't ask your receptionist to write it for you because the media will laugh at you. Writing for the media is not exactly for receptionists. Not belittling them but they are just not skilled in that type of writing.
3. Being Obsessed With Graphics While Ignoring Copy
Marketing is really a seamless blend of kick-arse copy and eye-pleasing appearance. Neither good graphics artists nor good copywriters are cheap.
Yet, when you read most career ads looking for "killer copywriters" or "copywriting gurus", that is, some accomplished folks, the pay seems to be barely more than that of an entry level data entry clerk or the wage of a school kid at McDonald's flipping burgers..
So, what do many technology companies do about copywriting? They dump it on either one of the available techies or on the receptionist. So, eventually the copy will be dreadful, and then this dreadful monstrosity goes on the website or on the brochures.
And the company keeps doing ugly filthy cold-prospecting grunt work because the copy on their documents and their websites is like the impotent husband: The position is filled but there is not production.
So, would these companies be better off by hiring proper copywriters? I think so.
According to the Prosavvy Group, businesses waste 38% of their revenues on doing something that is not their core activity.
And copywriting for technology companies is definitely is not a core activity. Furthermore, it's not even the kind of activity that would justify a full-time employee. Besides, good copywriters don't work on an employee basis. They are all freelancers.
So, stick to your knitting, and use casual external help with non-core activities. Your copy creates the perception of your business.
As Tom Phillips of Phillips Publishing said at a Jay Abraham seminar a few years ago...
"Hire the best and cry only once."
4. Printing And Sending Out The Wrong Materials
When we go beyond the basics and start printing fancy materials like colour brochures and colourful presentation materials, we can waste a lot of money.
When we observe most technology companies, we can see that they spend most of their money on printing the kind of stuff that goes into the rubbish bin right after arrival to prospects.
Most brochures are pompous chest-beating, so prospects don't want to read them. Why would they waste their times?
In almost all cases when I start with new clients, the first thing I suggest is that they get rid of their brochures and we write a kick-arse sales letter that invites readers to request a free white paper. In turn this white paper opens the relationship with new prospects who, from then on, are on a self-qualifying course to take action whenever they are ready.
And the original letter to invite prospects to download your white paper can be a one-page letter, and the white paper itself as PDF file. Nothing fancy. Nothing overly colourful.
The other point here is printing colour stuff on the in-house colour printer.
Technically most colour laser printers used in offices can do printing, but when it comes to printing promotional materials, except simple sales letters, whose job is to create the right perceptions, every business needs proper professional printing.
Now the other side of the same coin is that I can't see the point in printing colourful brochures. A simple black and white sales latter printed on your in-house printer can do a better job than brochures.
Also, people may say they need the colour stuff for sales presentations. Then stop doing sales presentations. Instead, facilitate highly collaborative diagnosis sessions in which all key players both on the buyer's and the seller's sides are involved.
5. Haphazardly Buying Ad Space In Publications Or Randomly Sending Out Letters To The Marketplace
Buying advertising space is expensive. But once you commit to advertising in magazines, you'd better keep it up. Check a magazine for a few issues and watch your results.
One more thing: Advertise only after you tested your ad in Google AdWords, so you know you can expect good response.
After working out a well-pulling ad, select your magazine. Stay away from free papers or magazines for decision-makers don't read them.
Or low quality cheapskate buyers read your ad and categorise your company as the provider of cheap solutions. What about buyers who need good solutions? They are likely to read different papers, thus hire other companies.
Don't get obsessed with costs but focus on the expected ROI. That's why you check your ad in AdWords for pennies.
6. Publishing One Issue Of A Newsletter On A "Let's See" Basis
Having an email-based newsletter is a great way of building a list of interested buyers, and while they may not be ready to buy from you right now, but you can build the relationship with them, and when they're ready, they buy from you.
But it's not an instant process. It is likely to take a number of newsletter issues to reach such level of credibility that people start contacting you and request your help.
What many technology companies do is that they publish one issue and if they don't get instant results, they stop publishing and declare newsletters as a waste of time. The fact that they apply newsletters the wrong way doesn't even occur to them.
The "Let's see" can come after checking interest over an extended period of time. A newsletter must be at least quarterly, but monthly publication is even better. A lot better. Besides if your level of belief in your own business is just a "let's see", maybe you had better pack up the business.
7. Expecting Earth-Shattering Results On A Near-Zero Marketing Budget
I know many "experts" disagree on this, but I believe it takes money to make money. It's just the law of the universe. You plant - invest - money and you harvest money, that is, enjoy a hefty ROI.
What I don't believe is that you plant chicken shit and harvest chicken salad.
Many technology companies are obsessed with growing their bottom lines without investing more. And this is why when they want to make more money, well, more sales, they hire more salespeople. Management puts them on straight commission, and the suits are happy because now the company can sell more without one penny of initial investment. And they hope that these salespeople start bringing in revenue instantly.
But this is dangerous too. These salespeople don't really belong to the company, so they do what's best for them.
So, these aggressive "hunter" type sales folks go out and start antagonising the marketplace. They aggressively dial for dollars, bang on doors and don't take no for an answer.
And all this aggravation could be avoided by allocating a sensible marketing budget and let the marketing programme attract qualified prospects who can take action on their own volition without manipulation and arm-twisting.
Advertising And Marketing Budget Considerations
Let's start with some statistics first regarding budgets for business development initiatives.
Typical technology companies invest 4.5% of their gross revenues in marketing and grow about 5% annually.
Great technology companies invest 13-15% of their projected gross revenues in marketing and can grow by as much as 50% annually or even more.
Lesson: Triple your investment and increase your return by 10-fold. It sounds like a pretty good deal. Why don't more companies do it? Maybe they are shy to invest in themselves. Maybe they are not confident in their own capabilities. Maybe they are not smart enough to understand the relationship between investment and return on investment. They try to maximise their return by minimising their investment.
There is one catch though. You have to use the percentage of the projected revenue you plan to make in the next fiscal year. If you keep investing a mere 4.5% of your current revenue, then you are likely to stay around at your current revenue level. Remember, investment comes first then the return.
Most companies invest the most money in generating new clients and invest almost nothing in converting first-time clients into repeat clients.
So...
...invest 20% to generate qualified leads.
...invest 20% to generate first-time clients.
...invest 40% to convert first-time clients into repeat-clients.
...stash 20% away for emergency reserve.
According to Boston Consulting Group's research, done between 1980 and 1995, companies invest in business development differently. When the shit hits the fan, the ones that reduced marketing grew by a mere 5% over the next 15 years.
The ones that stepped on the marketing accelerator grew by as much as 500% over the next 15 years.
Technology companies that have the brainpower to comprehend why it's a good investment to go beyond the traditional "Look at us how cute we are" type bromic self-aggrandisement in their marketing, and implement comprehensive direct response business development systems, must be ready, willing and able to invest a bit more than a few hundred dollars in three-fold flyers or websites haphazardly cobbled together by the boss' cousin, nephew or unemployed brother-in-law, just because they are willing to work for free or dirt cheap.
I know these are harsh words, and I use these words to actually encourage you to go beyond what your competitors do. Not necessarily outspending them but outsmarting them.
And the other side of the budget stuff is to hire quality people.
Technology companies shouldn't consider hiring minimum-wage folks to build their business development systems that are expected to bring in $10 million annual sales. The reason I mention this because far too many technology companies are still trying to achieve this feat, and keep failing.
8. In Order To Save Some Money On A Designated Marketing Person, The Receptionist, The Sales Staff Or The Secretary Does "Marketing"
This approach may seem to save money on the surface, but deep down it costs money for the company.
If you knew that the lifetime value of one client is $100,000, would you really ask your receptionist to organise a marketing campaign, write a sales letter and send it out to a database of 1,000 prospects, representing a potential $100 million revenue opportunity?
If your response rate is even just a paltry 1%, you could still make $1 million. And we haven't even touched on the referral business from these clients.
Wouldn't this opportunity justify hiring a proper marketer and copywriter? Yes, a good copywriter may charge $25,000 plus 2-5% lifetime royalty, but 95-98% of something is still better than 100% of nothing. A lot better.
And a marketer may require a $100,000 annual salary plus bonuses, but this is still loose change in comparison to what good marketing can do for your company. So, the investment is worthwhile.
I have a six-figure retainer with a small family-run IT consulting business. We're talking of a company of only 17 people. I provide the strategic oversight for the owner's teenage son and twin daughters (all three still in high school but on $45,000 salaries), and together we do the marketing stuff. We all tremendously enjoy the process and produce some good results. This small, "insignificant" IT business has $437,000 productivity (revenue per employee) with excellent margins on the top. And we keep working on increasing productivity, and I believe in a 2-3 years we can hit the magic productivity of $1 million per person.
The owner has recognised that first and foremost the company is in the marketing business and only then in the IT business. And this is hard to recognise for many technology companies. They do technology for the sake of technology. He has also bought into direct response marketing which eliminated the typical money wasting flash, glitz and glamour rubbish like brochures.
We have to shift here and do technology for the sake of improving clients' businesses. Huge difference.
Yes, it's not free to acquire a good marketing person, but if you buy into the idea that marketing is the most important business function with the highest potential ROI, then I think you too can justify the investment.
9. Letting The President's Whim Overwrite Research And Testing
While I do believe in good research, I also believe that it must be done with moderation and must be coupled with constant and never-ending testing.
The way I see it, if you want to jump into the swimming pool, you just have to check it for water and temperature. Your toe or finger is an excellent tool for this fiendish act, and even if the resident alligator bites it off, you still have a hefty supply of 19 in stock. And you are now ready to swim at your heart's content.
But you don't need to hire a team of experts to launch a full-blown research project on swimming pools, the science of concrete pouring, fluid dynamics and water biology. That's retarded but that's what most technology companies do under the aegis of market research. Don't waste your time and money researching the market.
Couple your research with observation. It's more realistic. The other problem with research is that researchers usually find what they are looking for. The phenomenon is called the participative universe concept.
You will never get true answers to your research. Instead of extensive research, do some research and keep testing the market. Then you find the true answer. You see, Joseph Swann in England and William Sawyer didn't research the light bulb. They tested their ideas over and over again, and then it worked out.
No, it was not Edison who invented the light bulb. He was just a loud-mouth media manipulator, a skill Swann and Sawyer didn't have. Edison simply announced his invention way before he'd created it.
10. Wasting Your Marketing Budget On Image Marketing And Institutional Advertising
You look at what most technology companies do for advertising and see that it's pompous flash, glitz and glamour-based image advertising, usually done by creative experts who believe that advertising should be cool and look ostentations. They also believe that the impact of advertising cannot be measured, thus deflecting accountability from their work.
These image ads are based on telling you how great the advertisers are but they fail to talk about the marketplace.
In the opposite corner of the ring, we find direct response advertising. As the name suggests, it's not about beauty or pompous pontificating, but about creating a response. It's basically salesmanship in print.
And of course, the results are trackable, so they can be improved.
11. Sending Out Brochures As Direct Mail Pieces
Technology companies waste thousands of dollars on sending out brochures that are full of self-aggrandisement but are totally useless for prospects.
Why do they do that?
I think it's about cost-savings. For $5,000 a company can get 1,000 copies of an impressive brochure printed in full colour. Add another $1,000 and they are mailed. It's all for $6,000.
Now ask for a direct response package written by a skilled copywriter. Now we're talking about $25,000 or higher in fees plus a 2-5% of gross sales in royalties. And most business owners don't like this, so they opt for the cheaper option.
The copywriter could produce way better results that the brochures, but most companies opt for the brochure because it costs less. Also, the president and the other executives of the company love the chest-beating on the brochure.
Besides, the effectiveness of the brochures cannot be measured so easily, so management can push its head into the sand and ignore the impact of the brochures.
The other problem is personalisation. Brochures are usually sent out non-personalised. Hence, most people chuck them away without reading. They are regarded as junk mail.
Well, who the hell would want to read a letter addressed to "The Occupier"? No one really. Well, except marketing folks to learn from them. But no one else.
At the same time, a well-crafted personalised letter, be it short or long copy, that offers some relevant and valuable information for a specific target market, can be much more successful, and you can pull in well over 10% response rate. And if you're promoting a white paper, you can expect over 50% response rate. According to Marketing Sherpa, 78% of top decision-makers respond when they are invited to download white papers.
And after that you can have the white paper do the selling itself.
12. Running Advertisements Only Once
That is a huge waste of effort and money. Any ad should run at least 3-7 times to make sure it creates the right number of impressions in the market's mind, and all the right people read and understand it, so they can make up their minds about responding.
So, it takes seven reads to respond, and, on average, people read every third message. So, you need 21 runs of the ad. This is a tad more than one.
Now there is the other side of the same coin. If you have a good direct response ad, then you'll be flooded with responses after one Exposure #1. The main reason to repeat the ad is to improve it with every exposure.
At any one time about 97% of the people who are reading your stuff are not ready for it.
Legendary advertising man, the David Ogilvy summarises the situation rather well in his book, Ogilvy on Advertising, called the Scowling Executive...
"I don't know who you are.
I don't know your company.
I don't know your company's product.
I don't know what your company stands for.
I don't know your company's customers.
I don't know your company's record.
I don't know your company's reputation.
Now-what was it you wanted to sell me?"
So, over time, this initial mere 3% interested people can be increased.
Here is a little motivation for you why it pays to be patient with your marketing materials. Now read how people think about your offer when they read it several times.
Exposure #1. Your prospects don't even see your message.
Exposure #2. Your prospects see it but don't pay attention to it.
Exposure #3. Your prospects are conscious of your offer's existence.
Exposure #4. Your prospects vaguely remember they have seen it before.
Exposure #5. Your prospects actually read your offer in their peripheral visions.
Exposure #6. Your prospects actually scoff at your offer.
Exposure #7. Your prospects read your complete message and sigh, "Oh my god!"
Exposure #8. Your prospects read your message and say, "Oh hell, this crap again!"
Exposure #9. Your prospects assess the possible value of your offer.
Exposure #10. Your prospects ask their neighbours if they have ever tried this kind of stuff.
Exposure #11. Your prospects wonder how you can afford to advertise your stuff.
Exposure #12. Your prospects think your stuff may be a good thing to own.
Exposure #13. Your prospects think perhaps your stuff might even be worth the price.
Exposure #14. Your prospects remember wanting such a thing for a long time.
Exposure #15. Your prospects are agonising over not affording to buy it.
Exposure #16. Your prospects think they will buy it one day.
Exposure #17. Your prospects make a note to buy it.
Exposure #18. Your prospects swear they are too poor to buy it.
Exposure #19. Your prospects count their money very carefully.
Exposure #20. Your prospects see your ad again, and buy your stuff.
And here you start the follow-up process...
This list is based on the observations of Thomas Smith of London from l885. The observations may be 120 years old, but it is basically same to the letter.
Advertising is about commitment, which may be hard to sustain after some slaps in the face and some hard kicks in the arse, but you must just hang in. The glory will come.
13. Assuming Your Marketing People Know Everything Just Because You Pay Them Well
No, they don't.
While I believe that if we pay our people well, we can attract high-calibre people, but I also believe that people do have blind spots regardless of the money we pay them. That is, they don't know everything and just by giving them more money is not going to remove their blind spots. And some of them who think they know everything, are in the vice grips of their egos and, well, stupidity, which can be harmful to their companies.
One of the biggest problems is the emotional involvement in their companies. Their livelihood depends on the company's performance, so it's obvious that they are emotionally involved. It's natural. But this emotional involvement also hinders their objectivity when it comes to decision-making. Most probably, they focus on short-term issues with instant gratification because they fear that long-term initiatives don't pan out and they lose their jobs or are forced to take pay cuts.
But besides the emotional involvement, it's impossible to hire people who know everything. Those people come pretty expensive, and most companies are not willing to pay the kind of money they demand. And there is no need for them really because the kind of expertise they have is not needed on a daily basis. For instance, while many companies provide medical and dental care for their employees, the medical folks who provide these services are not on the payroll. There is no need for that.
So, knowing that your people don't know everything, sometimes we all need some external help and support. And while that external help can be perceived to be expensive, we also have to realise that it's not a cost but an investment with a damn good potential return. I say potential because at the end of the day it's up to clients what they get for their money.
When you hire the right independent professionals for certain projects or simply to give you their two cents on something you're doing in your company, you get something you couldn't get from your own folks: The unvarnished, unbiased truth.
Of course, at this point many morons make the mistake of putting this independent professionals on a performance payment structure, forcing them to give up their objectivity and engage in short-termism. And some of them do because it brings them instant money, and by the time the consequences hit the company, these consultants are long gone, and business owners are standing there quietly regarding a few crucial lines in an old Frank Zappa song, entitled The Blue Light...
"Hey buddy, you need a hobby
You are tired of moving forward
You think of the future
And secretly you piddle your pants
The puddle of piddle
Which used to be little
Is rising around you, rising around you."
Nevertheless, there is not a dickybird they can do about it. Short-term thinking has already caused its damage.
On Summary
Robert Cialdini has validated in his book, Influence that people need social proof to do something. That's good. But the problem is that most technology companies get the wrong type of social proof from their competitors, and join an already huge "herd" that is already doing the wrong things.
But think of some great innovators in technology. Bill Gates didn't seek social proof for Windows. Steve Jobs didn't seek social proof for Apple. Stephenson didn't seek social proof for the steam engine. They created their stuff with bulldozering confidence.
So, instead of peeping into what competitors are doing, technology companies could just follow their own convictions and do what they feel is right. They would enjoy their work a lot more and would get richer for it.
Attribution: "This article was written by Tom "Bald Dog" Varjan who helps privately held information technology companies to develop high leverage client acquisition systems and business development teams in order to sell their products and services to premium clients at premium fees and prices. Visit Tom's website at http://www.varjan.com.
