In a recent post we discussed the Dutch startup environment, looking at whether the necessary conditions have been created within the Netherlands for startups to thrive and eventually become a Unicorn like Uber, Airbnb, Snapchat or Pinterest, or, in Europe, Skype, Spotify, Rovio and Dutch fintech company Adyen.
Though these companies have no trouble finding financial support, it is not always clear how they spend it. In general companies that attract VC funding state that they use it “to expand, acquire or attract (personnel).” Not once have we read the statement that these companies use it for marketing purposes. At the same time, marketing for a tech company, especially a startup that needs to build its brand from scratch, is crucial for growth.
In general, a marketing budget is approximately 10% of a company’s annual turnover. There is a difference of course between BtoC and BtoB companies. BtoC companies usually spend more on marketing. There are some good tech examples to follow; Apple being the leader of the pack thanking its current market share mainly to the marketing savviness of Steve Jobs. Salesforce also decided to go down this path and spends an astonishing 40% or more on marketing annually. There is a blog by The Alley, that gives a more detailed breakdown for tech vendors and their marketing budget. The list shows that the more established tech vendors have an average marketing budget that is 13% of annual turnover, whereas the relatively new entrants average about 40%.
Some vendors are very open about their marketing strategy and budget, and details can be found in their annual figures. Uber, for example, published its marketing strategy overview online. Unfortunately, most vendors are not sharing that much, so most entrepreneurs will need to find out themselves what the size of the optimal marketing budget needs to be.
Looking at an overview of European Unicorns it becomes clear that most of them are BtoC oriented companies. On average, these spend more on marketing than BtoB. There is only one Dutch unicorn, Adyen. However, there are others that could follow, like Catawiki or Elastic. Being (potential) unicorns they get enough visibility, so maybe marketing is not as high on their agenda as it is or should be for most startups.
In Europe, startups and Unicorns in particular need to prove themselves. It seems criteria for investment in Europe are higher than they are in the US, where valuations are average 45x the revenue compared to 18x in Europe. At the same time the average annual revenue of startups in Europe is $315m, compared to $125m in the US. Though many startups are governed by the principles “eat or be eaten” and “buy or die”, we want to make a case for stronger investments in marketing efforts.
When looking at the number of Unicorns in total, the big chunk resides in the US. Despite startup accelerator efforts in Europe, the US still has a head start when it comes to VC and entrepreneurial or startup environments. In addition, the US has a very strong marketing culture. Most of the US startups have formulated strong mission statements, like; “Help creating a world where you can belong anywhere (AirBnB)”, or “Transportation like running water, everywhere for everyone (Uber)”. Dutch Adyen has a nice one as well: “Get paid online, in store, and in-app, in a single solution. Wouldn’t that be wonderful?”. Many of the startups still need a lot of work on the marketing message though.
To grow, too many startups still take the most obvious route, which is to acquire to consolidate the market, or to expand to other countries. As the Dutch are a very international oriented country and the country itself is not large enough to create enough clients to become a Unicorn we will not dispute the importance of this.
However, to grow up and scale up, it does make sense to take a closer look at marketing initiatives. If there is a great product, start some great marketing. Make sure that marketing is aligned to your product, and examine your customers buying behavior. Many of the US Unicorns did not even spend a large amount of money on marketing but were able to create messages that went viral, or audiences with a common interest. But good old marketing still works as well. Salesforce has been able to grow a tremendous customer base, mostly thanks to its traditional sales & marketing efforts. We would like to see more of that in the Dutch startup market. Are you the exception to the rule? Then please share your marketing story with us!!