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You’ve been asked to cut your marketing budget. Now what?

Unicorpses. Layoffs. Bursting bubbles. Winter is coming. Every day there’s a new story on the 2016 techpocalypse.

Having lived through the 2000 dot com crash, this is nothing like it. But something has changed, so let’s start with a quick recap of how we got here. Starting in late 2012, tech companies began to raise massive funding rounds to chase growth. Here’s a chart put together by Tom Tunguz showing how the stock market once rewarded high growth tech companies:

http://tomtunguz.com/2013-ipo-characteristics/

Most of these companies are SaaS, which requires access to a huge amount of funding to run the business. Back in 2013 and 2014, money was plentiful. Private SaaS companies were able to raise hundreds of millions of dollars on the back of business plans that promised huge growth. And the market was so hot that non traditional investors — people like Wellington Management and Fidelity — jumped into the private company financing mix, often at much higher valuations than traditional venture investors were paying.

The most publicized example is Box, who grew revenue 110% in the year prior to their IPO but famously spent about 137% of its revenue in sales in marketing (over $170m!) to fuel the massive growth. The idea was that the SaaS unit economics of Box would eventually lead to a highly profitable business, where Box would a) “Land and expand” to keep net renewal rates well above 100% b) Lower sales and marketing costs to a more reasonable 35–40% of revenue range. While Box had to delay their IPO, ultimately they spun a compelling enough story to close nearly 70% higher on their first day of trading at close to a $3b valuation. But as we’ve learned in early 2016, markets go up, and markets go down. Box now trades at less than its IPO price, even though it continues to grow.

Nearly all of the tech IPOs from the past couple of years are currently trading below their IPO price. Private company valuation have taken an even bigger hit as they had further to fall due to the unusually high multiples they received in the recent past. Today, investors are no longer funding the grow-at-all-costs mentality of the past few years. They now expect companies to actually make money, or at least be able to paint a clear path to cash flow breakeven. While well funded public and private companies can hunker down and invest for the long term, not every company has a war chest of cash on the balance sheet.

So CEOs who once had access to unlimited private financing and/or a welcoming IPO market now must operate within the constraint of a reasonable burn rate… slowing hiring, cutting expenses, increasing gross margins, selling more…

And yes, cutting marketing programs.

Marketing programs are one of the few levers CEOs can quickly scale up and down. If you’ve been asked to look at cutting your marketing budget, here’s where’s to start:

Thank your CEO. CEOs are constantly faced with impossibly difficult decisions. Telling a high performing organization that they need to scale back can damage team morale. But as Heidi Roizen of venture firm DJF puts it:

You know what hurts morale even more than cost- cutting and layoffs? Going out of business.

Be transparent with your team. You can’t hide smaller budgets from your team, so include them in the budgeting process and help them understand the new constraints.

And maybe send them this post 🙂

Scale with brainpower, not budget. Rapidly growing marketing budgets creates bad behavior. People begin to equate their value to the company with the size of their budget, and makes it easier to spend on programs with questionable ROI. Pragmatic cuts to the marketing budget will help bring great clarity and focus back to your team, and eliminate the fiefdoms that sometimes form around budgets.

Most importantly, reduced budgets are a chance for your team to apply their brainpower, through developing new approaches, responsibilities and skills that might have been hidden by a bloated budget.

Eliminate the stuff you won’t measure. Marketing has gotten much better at measuring our impact on the business, and we’re pretty good at looking at how marketing spend across different channels drives leads, pipeline, and bookings. But there are still questionable “brand” investments we make that we’re not great at measuring — like PR. Jason Lemkin of Storm Ventures wrote a great post on how he measured PR at Echosign.

If you can’t commit to measuring your brand investments, then scale them way back. Or put much more effort into assessing their impact on the business and hold yourself accountable.

Stop buying leads. Joe Chernov of InsightSquared recently published a fantastic article on the rise of account-based marketing and marketing’s unhealthy obsession with the MQL. Many marketing departments operate on a spreadsheet model that sets MQL targets based on revenue goals and historical conversion metrics. That’s great, you should absolutely create that model. But your spreadsheet model is going to show that you need to create an unsustainable number of MQLs each quarter. This puts pressure on marketing to run expensive cost-per-lead programs to hit the lead commit. These less qualified leads then make your conversion rates worse, leading to your spreadsheet model telling you that you need even more leads next quarter.

This approach is broken. As Joe puts it:

Sales teams don’t need a torrent of minimally qualified leads; they need air cover.

Investing in account-based marketing is potentially a much more effective way for you to reach the companies who can actually buy your product. And it will help you better align sales and marketing by focusing efforts on a specific set of companies.

Take a hard look at events. Events can be difficult to scale back because they are often planned months or years in advance. But if you look closely, I bet you’ll find ways to cut back 10–20% from your budget without impacting the quality. People come to events to learn and network, so focus on the quality of your content and assembling the right people.

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Some Practical Advice for Aspiring Tech CMOs

In no particular order, here are some of the lessons I’ve learned running marketing at three tech companies.

Your most important job is to recruit and retain exceptional people

Never forget that people are your most important asset. As a CMO, you’ll be in endless meetings: the weekly leadership meeting, the executive offsite, QBRs, territory reviews, weekly pipeline reviews, product strategy sessions. Endless. Meetings.

Your calendar may be a mess, but you have to still find time to hire and develop your team. Make hiring your top priority, and personally review every candidate as long as you possibly can. Create and enforce a consistent hiring process for every candidate, to minimize the risk of hiring poorly. When I’ve hired poorly, it’s been because I broke process; ignoring obvious warning signs.

Don’t miss your weekly 1–1s with your direct reports. No excuses (wrote that for myself; I made too many excuses). Just don’t let anyone schedule over this time with your team. Make sure these meetings aren’t just a tactical review of todo items; instead focus them on strategic objectives and career development. If you’ve hired well, your team will insist on this. If you aren’t providing strategic coaching, they will leave and get it elsewhere.

Find the right balance between potential, passion, and experience in hiring

When I interviewed with Acquia in late 2012, they were one of the fastest growing tech companies on the planet. So why were they were considering me — and my measly 3 prior years of CMO experience — to run marketing?

Well, during my interview with Acquia CEO Tom Erickson, I was introduced to his P2 I3 philosophy — Passion, Potential, Integrity, Initiative, and Intelligence (sorry Tom if I got the order wrong). Tom explained these were more important predictors of success than experience alone (on a whiteboard, no less) and on that basis hired me as CMO of Acquia.

Experience is often really important, especially in roles like product marketing where domain expertise is beneficial. But don’t hire solely on experience, because experience alone is a poor predictor of success.

You won’t know how well aligned sales and marketing are until you miss a quarter

Every CMO chases the dream of sales and marketing alignment, but the true test is when you miss a quarter. At some point, you will. It happens to everyone. Then all your hard work and the conviction you had around your funnel in those weekly pipeline meetings is suddenly put into question.

The reality is that an aligned sales and marketing organization should have known about the miss many months in advance, and already have been working on the mitigation plan for the next quarter. If the miss triggers finger pointing then you probably weren’t as aligned as you thought.

Start by reviewing a key set of metrics each week that help you assess the health of the entire funnel. Make sure everyone agrees on the metrics, and that you keep them as consistent as possible quarter to quarter so you can learn and adapt from them. And don’t fall into the trap of focusing too much on the top of the funnel just because it’s easier to measure. Often the most difficult challenges (with the greatest potential impact) happen well after a lead has become a qualified opportunity.

Messaging is much more important than you think

Companies that absolutely nail compelling differentiated messaging crush their competitors. Think HubSpot. Splunk. Slack. New Relic. etc. Messaging is bounded by brainpower and creativity (not budget) so it can truly level the playing field against much bigger competitors when done right.

But messaging is hard. You’ve got to get buy-in from everyone. You’ve got to validate it with customers and analysts. You have to enable + certify your entire field organization on it. You’ve got to test it via your website, paid search, email, etc. Don’t underestimate how difficult and time consuming that’s going to be. But when done right, a compelling message cuts through the noise and amplifies everything else you’ll want to do.

Write more, read more.

I told friend + former Acquia colleague Jess Iandiorio in her annual review that she was the best product marketer in Boston that no one had heard of — and that needed to change. So Jess started blogging, which ultimately led to her getting connected with the excellent team at Drift where she now runs marketing. Through writing, Jess raised her visibility as one of Boston’s smartest marketers but more importantly, said writing gave her a tremendous confidence boost. So create an account on Medium like I’m doing right now, and get writing.

Of course you should read more too. I’m about to get into the latest from Aaron Ross and Jason Lemkin From Impossible To Inevitable: How Hyper-Growth Companies Create Predictable Revenue. Most of my actionable reading comes from Flipboard, where I’ve spent a bunch of time following publishers, people, and topics so my stream has become highly relevant to me. It’s a time investment worth making, and Flipboard is usually the first and last thing I look at every day.

Don’t immediately propose a rebrand when you start at a new company

Updating the logo and/or redesigning the website might feel like a quick, highly visible win, but in the end you’ll be much better off focusing on the hard work of sales + marketing alignment, creating remarkable content, differentiated messaging, etc.

There are exceptions: For example, Jess Iandiorio just led Drift through a rebrand from Driftt. That was smart, because I just had to Google whether it was Drift with two t’s or two f’s. But unless there’s a well thought out compelling business reason for a rebrand, don’t do it. Or risk suffering the same fate as Uber.

Don’t chase shiny new #martec toys

BDRs pitch me on all sorts of new products every day. Most of the pitches are pretty forgettable, like this “breakup” email I just received:

Please stop it w/ the meme-laden breakup emails, they were cute for 15 minutes

The best way to pitch me is with FOMO, making me feel out of the loop for being the only CMO not using the latest and greatest marketing tech. Give me a slick demo and a spreadsheet that promises massive growth and ROI and I’m sold!

Credit: http://chiefmartec.com/2016/02/valentines-day-ode-marketing-tech-entrepreneurs/

Turning that spreadsheet into reality takes a lot more than any product alone can deliver. SaaS makes it easy and cost effective to deploy new products, but SaaS doesn’t account for the resources and organizational commitment you’ll need to make them successful. Where I’ve been able to align the organization with the technology, it’s worked great (for example, Acquia’s work with Captora). Where technology has failed, it’s not because I picked the wrong product; it’s because I didn’t commit the right resources.

In the end, remember that just because Box, Slack, Zendesk, or whoever is adopting that fancy du-jour SaaS product doesn’t mean that your team is ready for it.

Operate on a monthly marketing plan

Starting in early October, you’ll be asked to start thinking about your plan for the next year. Sales will ask how you are going to help them hit their pipeline + ARR targets for the upcoming year. Finance will ask you for a budget plan. Your head of products will want to understand your demand generation strategy.

You absolutely need a strategy for the upcoming year. You’ll need to plan ahead for events like product launches, conferences, big campaigns, etc. But don’t pretend that you have any idea on the specific tactics you are going to employ outside of the next few months.

I’d suggest running a simplified agile process, defining “epics” to represent your 3–5 objectives for the year (hopefully these won’t change, but they might). Then define a three month plan each month, but treat everything beyond the upcoming month as backlog. Then run monthly sprints, including a retrospective to review prior results, and creation of a plan for the next sprint.

This way you’ll have a rolling view of the next few months, with the flexibility to quickly adjust strategies and tactics as needed.

Say no more often

It’s far too easy for marketing to become relegated to service bureau status or worse, the arts and crafts department. We often get asked to do stuff that has little to with our real mission to accelerate growth. Carefully consider the impact of saying yes to requests that don’t align with your strategic initiatives, no matter how hard sales argues for that one-off campaign, or the CEO demands that you update that one page on the website that no one visits (note: both of these examples are fictional, they would *never* happen!)

Saying no comes down to having a clear list of priorities. It’s much easier to say no to anyone if you can easily help them understand the associated opportunity cost. This is where running an agile-like marketing process works, because you can capture these requests in a backlog and constantly revisit priorities every month.

Your budgeting process is probably broken

Finance desperately wants CMOs to build a budget solely based on an Excel model that starts with revenue targets and spits out a marketing programs budget based on conversion rates, ASP, CPL, product mix goals, etc.

You should absolutely build that model for finance, but don’t trust it completely, and certainly revisit your assumptions often. The model won’t account for so many things — product improvements, a successful PR campaign, fundraising, changes in your deal qualification processes, sales restructuring, and so on.

The truth is that budgeting is mostly science, part art; and it gets easier with experience.

Listen to your board, but trust your own experience

Board members are an invaluable asset. They have exposure to other high performing companies, and often have direct experience building and scaling companies.

When NEA invested in Acquia, they encouraged us to simplify our complex multi-product strategy into a single offering that became the Acquia Platform. NEA portfolio company Mulesoft had successfully gone through a similar transformation. This was a brilliant idea, and led to Acquia getting into much bigger deals than before.

But your board doesn’t know your business as well as you do. They will provide many great suggestions, but what worked at one of their portfolio companies may or may not work well for you. Listen carefully, but always remember the board is there to advise, not dictate.

It’s okay to feel like you are in over your head

It happens to all of us. Eat better. Get some exercise. Obsessively watch house-flipping shows and go to bed every night at 9pm (wait, is that me?).

Whatever helps you de-stress.

Seek advice from others

I’ve been lucky enough to spend some time with Boston CMO royalty — like Mike Volpe, Carol Myers, and Brian Kardon — and I’ve learned something actionable from all of them. You’ll be surprised at how willing people are to help if you ask nicely (and are patient).

And when you ascend to CMO, please pay it forward to the next generation.