Great products do not always speak for themselves
Or some brief thoughts on the value of marketing
Before I started my MBA, my ignorant heuristic for understanding the hierarchy of roles in companies I worked for had been whether people were ‘front office’ or ‘back office’. Front office meant investing or trading etc, while back office meant everything else. I thought marketing belonged to the back office category. When analyzing companies as potential investments, I never considered their skill at marketing. I spent plenty of time parsing their financials, looking for choke points in their supply chains, questioning their pricing power, but marketing did not seem objective.
My thinking changed when I went to business school. Actually, putting it that way is too kind. I hadn’t been doing much thinking before. I remember the way in which our professor opened the first lecture. Paraphrasing him:
Marketing is the one discipline in business that everyone thinks they can do. Marketing…oh that’s easy. Well I’m here to tell you that marketing is not rocket science…it’s harder than rocket science. Rocket science deals with the laws of physics, but marketing deals with people. And people are hard. People are really hard.
It turned out to be one of the courses I enjoyed the most. Not because I learned sophisticated techniques like conjoint analysis, but because at its core marketing is psychology. The main lesson I absorbed was that people don’t care about your product’s features, they care about the emotional values and benefits that those features embody. For this reason, products that solve for what people want tend to be less successful than those that solve for what people need. And people’s needs can be just as impenetrable and bizarre as people themselves.
This provides some context for why I was troubled last year when I read an old blog post on marketing by venture capitalist Fred Wilson. In it he tells the story of an entrepreneur who believed his startup needed a marketing budget. He implies that this was a misguided belief and points out that all his best portfolio companies found ways to hack their initial user growth and acquire customers for free. Admittedly, the post is now quite old and he has since written a follow up in which he walks back, but I still want to quote a line he uses to wrap up his original post, as I believe it is emblematic of a certain kind of thinking in Silicon Valley.
Build a great product – I'll end with a return to where I started. Marketing is for companies who have sucky products.
A quick summary of the gospel
For a startup, the state of accelerating ascent toward a promised land of outrageous margins and excess returns is usually known as product-market fit. I do not want to pour my own thimbleful of water into the ocean of content that already exists on this topic. It has been authored by people much more knowledgeable and experienced than me. But I do want to give a tiny overview.
Product-market fit describes the concept that success for a startup derives from matching the right product with the right market. Reduced to its essence, you need to build a product that people want. This seems like an uncontroversial idea, but achieving its realization is not so simple. There are different strategies, tactics and methods that might be employed. Most often this goal is pursued via relentless focus on the product itself.
The basic premise is not quite encompassed in the phrase “if you build it, they will come”, but perhaps might be in the exhortation “if you build it, and build it really really well, they will come and then tell all their friends to come too”.
If you accept that premise, then it makes sense to spend most of your energy on building the product. Again, this doesn’t seem controversial. If you want to build something people want, then it should probably be good. If the product is good, people are more likely to want it. So make sure it’s good.
The charged emotional state generated by a compelling product is often described as customer delight. I tend to hear product managers talking a lot about ‘driving delight’ and ‘building products that delight people’. I’m not quite sure how the word ‘delight’ made it into this lexicon. I have an irrational disliking for it in this context. When I hear ‘delight’ or ‘delightful’, I always think of the face someone would make when they pull a perfectly baked cake out of the oven or when they see their puppy after it’s just been groomed and shampoo’d. That aside, the word does reinforce the idea that what is sought above all is product excellence.
A startup also needs to understand who wants their product. It is not enough to build something great, you also need to aim it at the right people. Hence, product-market fit. This can be just as, if not more, challenging than the initial build. Assuming your product could be ‘delightful’ for someone, optimizing it for an audience that shows no interest will only be counter-productive. You need to test new markets until you get signal from people who really want it.
My summary here is a gross simplification, but hopefully it conveys that product-market fit consists of a series of ideas and techniques that early stage companies might adopt while figuring out who they really are and what they really do. If you don’t have a product that people want, everything else is moot. Moreover, exponential organic growth via word of mouth is the most economically efficient way for a startup to scale, making the promised land that much closer.
That said, in my view, some problematic ideas have been pushed as corollaries to this philosophy. One is the notion that competition is unimportant. Such a belief rests on extrapolating the principle that people care about good products. If your product is good, people will want it, so just build a good product. If a market has choice, just build the best product and then nobody will care what other products are out there because yours will be the best. I think there is an abstract kernel of truth to this, but in practice believe it to be a dogma that does not allow for a changing environment. A topic for another day. Another idea is that marketing is for companies with sucky products.
The thinking behind this claim is that marketing can mask the underlying quality of your product. If a company spends a lot of money on marketing and grows fast, then they might flatter themselves into thinking their product resonates with customers - that it is driving delight - when in fact the growth is a result of paid marketing spend. To a resource-constrained entity like a startup, self-deception can be fatal. The best policy is to remove the source of blindness and focus on great products, which speak for themselves.
This is a logical criticism of marketing in this context. But do great products always speak for themselves? Are there external factors that influence whether they do or do not?
Objections to the gospel
I would like to focus on one variable that I believe might determine whether or not a product can thrive unaided by marketing. That is the stage of the market. There are other variables, of course, but they are out of scope for this ‘brief’ post.
In understanding what marks a revolutionary product, I am a big fan of one of the frameworks Peter Thiel provides in Zero to One - that a product capable of generating exponential growth is either something completely new or it is an improvement on what already exists, but by several orders of magnitude. We can infer market states for each of these scenarios.
If a product is completely new, then by definition its market is in a state of nonexistence until it pulls it into being. I think this is the ultimate goal for any startup - to create something new and conjure a market from nothingness. Not only is it an enviable position from which to build sustainable advantage, it also comes closest to aligning the standard startup ‘changing the world’ narrative with reality.
A product that is a vast improvement on alternatives is theoretically market-agnostic, but I think it would be hard to create an effect like this in mature, established markets. More likely these improvements can be made in markets that are nascent. Tesla is a great example. Electric vehicles existed before Tesla, but the market was underdeveloped and those EVs that were available were unappealing. Tesla came along with a product that was incomparably better. Google is another example. I did like my old pal Jeeves, but Google’s web crawler was much, much better. Figma is perhaps a more recent example. Design tools had been around for a while, but they were clunky and unloved, until Figma’s implementation in the browser allowed a new level of collaboration and created a legion of thrilled designers.
In these circumstances, marketing would add incremental value at best. The product would likely determine its own future.
But a commoditized market is another matter.
In a commoditized market, I believe marketing can have value and should be seen as a critical extension of the product. The initial difficulty lies in recognizing that your market has become commoditized.
What are the signs of a commoditized market?
In short, products in a given market become commodities when they are perceived as substitutable.1 If we use Geoffrey Moore’s definition of a market as a group of people that reference each other, then a commoditized market is one in which all these people are aware that they have many alternatives of indistinguishable quality to choose from.
We can point to two trends that lead any market to this state. One is when a standard product design or technology takes hold. Initially, of course, there is competition among products on both of these parameters, but as a market matures this competition causes convergence upon a common feature set. The other is increasing transparency around pricing and product features. When customers can compare easily among products they are more able and more likely to switch. By the same token, companies are able to see competitor offerings in near real time, which allows them to release their own fast-follow products, shortening the duration of any advantage an innovation might enjoy . All else equal, the greater the information symmetry in a market, the more easily it lends itself to commoditization.
There are a few common indicators of a market like this:
Increasing price sensitivity
Increasing price competition
Industry consolidation
They key point I want to make here is that markets for software products are no more immune to the trends of commoditization than any other. In fact, technology tends to increase informational transparency, which fuels the second trend I mentioned above. Intangible sources of market power like network effects and increasing returns from scale might give the appearance that leading software products enjoy unassailable advantages, but the reality is that any market can become commoditized. What defines dominance varies from market to market, company to company and product to product. ‘Tech’ is not a homogeneous category.
I get the impression that some people in tech scene have forgotten this. So certain are they of standing alone on the bleeding frontier of progress, that they become blind to those arriving on their left and right in similar surety. What once was their frontier is now heavily populated. Abundant access to capital and radical information symmetry have made this process faster than ever.
How can marketing help?
One rational conclusion is that commoditized markets are unattractive and any company would be better served by exiting in search of opportunities elsewhere. But maybe you don’t have that choice. Or maybe you just can’t give up the fight. Either way, it is important to accept that no product is dominant among commodities. There is only one true power - the mind of the consumer.
People are both rational and irrational. Rationality always knows when it is being offered a bargain, which is why in physical commodity markets the lowest cost producer wins. Software companies cannot pursue this kind of low cost strategy, however, as the marginal cost of delivering their product is negligible. Irrationality is different and is where marketing comes in.
To be clear, when I talk of irrationality I do not mean people acting in a stupid way. I am referring to behaviour guided by complex and varying preferences, values and emotions. A nuanced understanding of how these underlie whatever problem a company is trying to solve provides the ability to appeal to people in a unique way and on the most fundamental level. A powerful value proposition and considered messaging are high leverage investments that chart a course to the mind of your customer. They can differentiate your product. This may seem ephemeral, but so are consumer tastes and so is customer loyalty.
Marketing can also allow you to make a psychological pivot. Most pivots involve one or more foundational changes to the product itself, but a psychological pivot repositions the business around a different value proposition in such a way that it changes consumer perception. My favourite example of this is Blancpain, the oldest surviving Swiss watchmaking brand. Plenty of commentators today believe the Apple Watch has rung the death knell of the Swiss watch industry, but this is not the first threat to that exclusive enclave. In the 80s, Swiss watchmakers were under attack by a glut of cheap quartz watches from Japan. There were similar prophesies of impending demise, but Jean-Claude Biver, arguably the most legendary figure in the history of the watch industry, launched a new campaign at Blancpain based around the contrarian slogan, “Blancpain has never made a quartz watch, and never will.” Nothing had changed about the watches, but this reframing of psychology around them led to a revival at Blancpain and a resurgence of the wider Swiss watch industry. If it sounds absurdly simple, therein lies its genius.
New marketing channels have opened in recent years that are predicated on trust. Chief among these is influencer marketing. If ‘influencers’ makes you think of 20 year olds raking in millions by taking selfies, then you would be right…but you should also realize that influencers are effectively budding media companies. Their asset base grows with their audience and their brand value accrues alongside the accumulation of trust from that audience. As long as trust grows in line with the size of the audience, influencers become the guardians of a valuable asset base. Any company that is able to market by using the influencer-audience relationship is effectively skipping a step. It is equivalent to a candidate being internally referred for a job. In both cases, we can observe a higher level of intent owing to trust in the intermediary. Channels like this are helping startups scale in ways not previously possible.
While I am not suggesting that any of these marketing tactics might result in enduring competitive advantage, I do think they can be viewed as valuable extensions of a product strategy. It is perfectly possible nowadays to build an outstanding product that launches into a market swelling with other outstanding products. In such a scenario you need to find other ways to differentiate.
An appreciation of marketing is not tantamount to admitting you have an inferior product, it is an acknowledgement of your external environment.
https://www.bcg.com/en-us/publications/2015/business-unit-strategy-escaping-dog-house-winning-commoditized-markets