The game changed September 15, 2008.
As world markets came tumbling down, the future of many internet start-ups also turned to dust. The message from the financiers is clear - they will be no more money. Web watchers, such as TechCrunch, feature a deadpool of failed internet start-ups. That list is going to grow exponentially in the new year as company after company runs out of cash.
However, history tells us that where there is chaos, there is opportunity.
After all, we've been here before.
Take, for example, this memo by Ron Conway, founder and managing partner of the Angel Investors LP funds who backed Google, PayPal, and more.
"....I was an active investor in 2000 when the "bubble burst" and remember it vividly and want to give you the SAME EXACT advice I gave to my portfolio company CEOs back then.I have pasted in the e-mails I sent on April 17th 2000 and May 10th 2000 and every word applies today. Unfortunately history DOES repeat itself but I hope we can learn from history and prevent the turmoil from occurring again. The message is simple. Raising capital will be much more difficult now".
Once of the benefits of market cycles is that history often repeats itself. This allows us to learn the lessons of the past, and apply them to the present.
I'd recommend you watch this presentation by Sequoia Capital, entitled RIP:Good Times.
So the good times are over. Now what? Sequoia recommends managing spending, revising growth and earnings assumptions, to focus on quality. lower risk, and reduce debt.
In 2000, Google was still a struggling start-up. The tech bubble had just burst. One year later, hijacked jets hit the Twin Towers, sending markets, and our collective notion of global security, into a tailspin.
Yet, it was during these seemingly turbulent times that Google rose to become the powerhouse it is today.
Part of that success was due to a focus on quality, careful spending (Google never spent a lot on advertising), network effects, and failure of the competition to grasp opportunities. Everyone else was distracted. Google remained focused on building value.
Research shows that companies that spend money on marketing during a recession tend to benefit the most.
Over the years hundreds of studies have been conducted to prove companies should maintain advertising during a recession. In the 1920’s advertising executive Roland S. Vaile tracked 200 companies through the recession of 1923. He reported in the April 1927 issue of the Harvard Business Review that the biggest sales increases throughout the period were rung up by companies that advertised the most. ....The findings of six more recession studies to date by the group present formidable evidence that cutting advertising in times of economic downturns can result in both immediate and long-term negative effects on sales and profit levels. Meldrum & Fewsmith’s former Senior VP, J. Welsey Rosberg reports “ I have yet to see any study that proves timidity is the route to success. Studies consistently have proven that companies that have the intelligence and guts to maintain or increase their overall marketing and advertising efforts in times of business downturns will get the edge on their timid competitors.
Marketing is an investment, not just an expense. And just like in the stock market, that investment can pay the biggest dividends when assets are under-priced, because everyone else is selling, not buying.
Let's look at a few features of a down market that you can turn to your advantage.
Down Market = Cheaper Ads
Advertising markets are cracking. One of the first casualties in an economic downturn is marketing spend. Not great if you sell advertising, but great if you buy it.
In down markets, you can get a lot more advertising reach for a lot less money than during boom times.If your strategy involves building brand awareness, then now might be a good time focus on this aspect. Being visible creates a sense of familiarity, and that's much easier to do when your competition isn't flooding the channel with noise.
Note: A lot of advertising spend will shift from traditional channels to the internet as people seek value.
We forecast that the Internet advertising market will continue to expand at a strong pace in the immediate future (with a predicted 31.4% increase in expenditure in the UK in 2008), and that it will experience a less steep but steady momentum thereafter, to 2012.
Fight In Short Bursts
One idea, often used by offline marketers on television and radio, is to bombard an advertising channel with short bursts of intensive advertising and then go off the air completely for a few weeks. It is a lot cheaper than maintaining a constant advertising presence, and with fewer advertisers to compete with, you costs should be lower, and your impact higher.
It's a high impact strategy that will fit well with sites looking to build brand.
Follow Warren Buffett
Warren Buffet is the worlds most successful investor. And what is Buffett doing at the moment?
He's buying assets while everyone else is selling.
Might now be a good time to buy up websites, too?
Competitors Cutting Costs And Losing Focus
One of the problems during the 1930s depression was that government cut spending. When government started spending again, the economy picked up. Governments have learned from this mistake, which is why we're seeing government making cash injections.
It's more complex that this, but the takeaway point here is that cutting costs and losing focus on the goal might also ensure you never reach it. Going into hands-off cruise mode could be costly.
If you have the cash, then sowing the seeds of growth now, whilst everyone else is navel gazing and slashing their costs, makes it hard for them to catch up with you again when they do start spending.
Diversify Marketing Spend
Take a strategic approach. Spending aggressively in a down market doesn't mean throwing your money at everything.
In this article, Recession Marketing, Amanda Stock outlines how you can diversify within a search marketing strategy:
It is also important to take a strategic approach when you diversify your marketing budget. For example, if you are currently investing the majority of your marketing efforts in a Pay-Per-Click campaign, you may want to allocated half of that budget to an SEO campaign which, in the long term, can increase the return on investment and decrease dependency on paid search.
Key Tips: Advertisers with a solid PPC track-record have an incredible advantage for venturing into organic search (SEO) because the PPC data such as which keywords converted best and which led to the highest volume of sales or average ticket price can now be a major factor in prioritizing the SEO targets. Since SEO is long term you want to be absolutely sure you’re targeting the right keywords long before you reach the first page for them.
Build Network Effect Advantages Into Your Work
But what if you're cash strapped?
Try to build network effects into your strategy. A network effect is the effect one user of a good or service has on the value of that product to other users. An example is the telephone. The more people who own telephones, the more valuable the telephone is to each owner. Similarly, auction and social network sites become more valuable the more people use them.
One marketing advantage of a network effect is good word of mouth. Word of mouth is the cheapest and most effective form of marketing there is. Again, because the channels are quieter during a down market, chances are you'll be heard more easily if you're one of the few outfits making noise.
In this article on Forbes, Roelof Botha, the venture capitalist who backed PayPal & YouTube, advocates taking word of mouth one step further, using viral strategies to boost consumer adoption:
A truly viral business is "like a disease," says Botha. "It needs to be transmitted from one person to another"--and the other person has to catch it. Once the next person catches it, he or she becomes a carrier too. Here are some good examples:
-- PayPal. If Bob sends Mary $25, Mary has to join PayPal in order to claim her money.
-- Evite. John e-mails you an invitation to his bachelor party but in order to read the details such as when and where, and to RSVP, you have to log onto Evite. E-card vendors work the same way.
-- Plaxo. A friend or business associate sends you an e-mail asking you to update your contact information. Once you log onto Plaxo to correct your phone number, you’ve caught the virus. Other services such as Birthday Alarm use the same strategy.
-- Skype. In the beginning, the only way you could make a free phone call over Skype’s Internet voice service was if the person you were calling was also a Skype member.
PayPal & YouTube also made it a strategy to be part of other networks. In so doing, they grabbed those networks audience share, and without the need to go into partnership.
eBay had an open software platform, which meant sellers could insert their own HTML code such as icons and visitor counters onto their auction pages. So PayPal built a tiny piece of code that allowed eBay merchants to include a PayPal payment button. By the time eBay got around to buying its own payment service, PayPal had infiltrated its business so deeply that eBay’s customers wouldn’t hear of using anything else....YouTube similarly benefited by becoming an insidious element on MySpace and other social networks and blogs.
Focus On Quality
Word of mouth comes about when you focus on being remarkable.
Learn the lesson of Google and PayPal, both of whom flourished during economic downturns. Provide a quality service, and people will use it, and talk about it.
Go back to basics. What is your value proposition? It needs to be compelling. When people are short of cash, they focus their spending on the the essentials, not the frivolous. Are you solving a real problem for people? Do you really know your customer? Ask not what they want, ask what do they need.
Focus On Essentials And Value
People who are worried about where their next dollar is coming from are going to be hesitant about signing up for expensive items, or long term deals. If you're selling an essential service or product, as opposed to a desirable product, you're going to find it easier. When the buyer has less discretionary spend, they're unlikely to be talked into non-essential deals.
Instead, focus on building relationships. This can be as simple as communicating well, showing integrity, and being passionate about what you do. When people do have more money to spend in the future, they'll remember you.
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