The Death Spiral of Startup CMOs

I’ve met with a lot of CMO/VP Marketing types at startups. Generally speaking, they do not have a long shelf life. I was curious why so many startup CMOs leave the company after a short period of time, so I dug in a bit to figure out why. I found that it’s partially due to bad hiring practices for startup executives (which I have previously blogged about), but even more common was that big brand traditional marketers have a tough time “scaling down” into the scrappy, digital-first world of startups tactically.

The traditional marketing executive is more likely to be a brand marketer from a large company than an online marketing or growth person from a startup. These marketers have built careers deploying big budgets and leveraging a few channels that really matter to tell the brand story. The main one of course is still TV. TV is great for brand building, but startups cannot wait for multiple years of investment in brand advertising to start to pay off. They typically will run out of cash before they start seeing a return on the investment in TV. (This problem is particularly acute if you’re a startup that is live only in a few cities and gradually expanding across the country — i.e. most marketplaces.)

How does a marketing executive get a quicker read on effectiveness, especially if their startup doesn’t cover the entire country? One way I’ve seen marketers try to solve this problem quickly is to buy local TV brand advertising in a test market and compare to a control test market where they have not bought TV advertising. They measure if brand metrics improve in the paid market during a three month test. If brand metrics improve, it should be leading indicators for sales to improve.

On paper, this makes sense, but in practice, it is the first trigger of the CMO death spiral. The problem is twofold. First, the cost of local TV is 10x more expensive than national advertising. That premium is hard to make up. Second, TV brand advertising is generally not very effective and even harder to drive quick results. With a typical brand-based buy, ads will run at many different times during many different, popular shows. So even though many people will be watching and thus exposed to the brand, the viewers’ focus is on the show and not on a call to action.

In short, big brand marketing executives have used large budgets for a test and gained small bits of exposure for the company. That exposure usually doesn’t transit into brand lift or sales, and the founders quickly lose confidence in the CMO. From there, I’ve seen it is a matter of months before they either get fired or lose their budget, which will make them leave.

But its not all fire and brimstone! There are savvy ways for marketers with big brand backgrounds to be successful at startups. For one thing, start by testing national, direct response TV. This type of ad buy targets people who are watching TV because they are bored — not because they are super engaged with the show. In this scenario, ads run at off-peak times or on less popular networks and only cover a small percentage of the country. You get the data on the exact times and areas where the ads run. Then, you can watch for an immediate response in website/app traffic right after the ad, and track those users to see what they end up doing. Agencies that sell direct response typically offer data science services to measure the impact, and you can augment their reports with tools like Convertro or C3 Metrics that do it.

Grubhub and Seamless are both good on-demand startup case studies before they merged: Seamless bought national, direct response TV ads while the service only covered 20% of the U.S. population. Grubhub did it with only 40% coverage. Seamless then used all the website traffic data outside their coverage areas to determine where to launch next. At Grubhub, we saw a response immediately during some of these ads airing, and could actually calculate not just brand lift surveys, but CPAs due to transactions.

A broader lesson here is that traditional target marketing can be expensive as the people selling advertising have learned that traditional marketers will pay a premium for it. And while that math still works for a CMO of a CPG brand, it won’t typically work for a startup.

What is the the best way for a CMO to be successful and stick with your company for the long term? First, they need to find ways to reach the target market they want to reach in a cost effective way. (I go deeper into this topic on my post on remnant inventory.) Seamless reached an insane amount of people in New York with DRTV ads, so it didn’t matter that some people in Boise saw them, too. Secondly, CMOs need to work on other ways to add value to the business besides telling big brand stories. Depending on the business, that can include understanding customers better, building communities, performance marketing, or product driven growth.

Currently listening to Children of Alice by Children of Alice.

This was originally posted on the Greylock blog.