OnStartups

Startups: How To Build A Barrier To Entry With Inbound Marketing

Posted by Dharmesh Shah on October 20, 2009 in marketing strategy book self-promotion 61 Comments

I’ve been doing a fair amount of speaking lately.  It’s partly driven by my recently released book, Inbound Marketing: Get Found Using Google, Social Media and Blogs (which is doing exceptionally well -- more below on this). The topics I usually speak on are startups (surprise) and marketing (surprise, surprise).  And, when I’m really on a roll and feeling adventurous, I talk about startup marketing. inbound marketing book

First off, a quick confession.  I’m not really a marketer, and I don’t play one on TV.  I’ve never had the word marketing in my job title, ever.  The closest I’ve come to any formal academic training in marketing are two marketing classes I took in grad school.  Neither of them were really about marketing a startup (they were about pricing and branding and other high falutin’ stuff).  So, much of what I’ve learned about startup marketing has been through (gasp!) actually doing it

Now, I want to lead with the fundamental premise of this article: 

Exceptional marketing can be a formidable barrier to entry. 

For those of you that are new to the investor game (which is usually where the phrase turns up), “barrier to entry” is loosely defined as that thing which makes it hard for competitors to enter your market and reduce your profits.  In most cases, when VCs ask a startup about barriers to entry, the response usually falls into one of two categories:onstartups barrier

Type 1:  We’re doing something that is so hard to do that few others can do it.  This is usually manifests in the form of some intellectual property (IP) like source code.

Type 2:  We’ve got exclusive/proprietary access to some important resource that others can’t get to.  This could be in the form of some product integration partnership (like bit.ly has with Twitter).

Of course, there are other types of barriers to entry, but the above two types capture most of what you’re likely to hear — and software entrepreneurs are often focused on the first one (i.e. "lets build a kick-ass product that’s really hard and others can’t replicate because we’re just so freakin’ awesome").  Nothing wrong with that.  I’m a big fan of doing really hard things that you’ve got a rare talent for and others can’t easily emulate.  However, it’s entirely possible that late at night, when you’re talking to yourself, you might say “Self, I know my application is cool and all, but honestly, I don’t think it’s that hard to build.”  Be comforted in the knowledge that most software being built is not particularly hard to recreate.  So, the question is, if it’s not the software that’s going to be your barrier to entry, and you’re not fortunate enough to have a lock on some proprietary resource, what do you do?  My advice:  Get phenomenally good at acquiring customers efficiently.  The emphasis is on the word “efficiently”.

So, here are some thoughts and insights on how I think you can build a barrier to entry with marketing:

How To Build A Barrier To Entry With Inbound Marketing

1. Getting good at spending money doesn’t count.  Your strategy shouldn’t be “go raise a bunch of money, then use that money to go buy your way to some customers. Then, make it up in volume.”  Though that can certainly work, that’s not a defensible barrier to entry.  Just about anyone can spend money (some smarter than others).  You need to focus on creativity, not cash.  More on this later.

2. PPC (Pay-Per-Click) can be effective, but will not protect you.  One of the popular forms of marketing today is pay-per-click advertising through programs like Google AdWords.  I’ve seen entrepreneurs get really, really good at figuring out just the right bidding strategy and figuring out precisely how much they can afford to spend on a given word based on their conversion rate and lifetime value of the customer.  This is all fine and good, except for one thing.  PPC programs like AdWords run as a real-time auction.  She who pays gets the clicks.  It’s easier to describe why this is a problem with an example:  Let’s say that you’re building a web-based app for home theatre installers (random example that I just made up).  Let’s also say that over time, and with some maniacal focus and PPC bidding ninja skills, you figure out that you can afford to pay up to about $2.76 a click based on the traffic that these clicks generate, how many clicks lead to purchases, and the value of each purchase.  Life is good.  For every $1 you put in to the PPC machine, something > $1 comes out.  This goes on for weeks/months.  Then, all of a sudden, you wake up one morning, check your analytics and discover that for some reason, the price for your most important keyword went up.  Way up.  Enough that your morning coffee comes shooting out your nose.  After some poking around on the Interwebs, you find out that some lame startup on the other coast just raised $5 million from some lame VC.  They just emerged from the shower freshly sprinkled with a new round of funding, hired a VP of Marketing who then went out and started buying AdWords.  Your AdWords.  The real tragedy with this story is that this competitor is not all that bright.  They don’t know that they can’t really afford to pay that much for a click and make profits (they’re not thinking about profits — they just raised a bunch of money).  Your problem is not that they’re super-smart, it’s that they’re super-ignorant.  And that’s the thing with PPC.  You’re basically at the mercy of the stupidest market entrant.  Call me simple-minded, but that doesn’t sound like a particularly effective barrier to entry when someone can just come along and drive your cost of customer acquisition (COCA) up.  And, it doesn’t happen overnight — it happens immediately

3. Get spectacularly good at search engine optimization (SEO).  Instead of becoming really, really good at PPC, invest in the time and energy to become an SEO-ninja instead.  The first reason for this is that SEO is cheaper.  Not free (generally), but free on a marginal basis.  Here’s why:  In PPC, each additional click costs you money (based on the cost-per-click).  Want 1,000 more clicks?  You pay for all of them.  For SEO, once you’re ranking well and getting traffic, the clicks don’t cost you anything.  It’s going to take some time/energy to rank in the first place, but once you do, life is good.  Further, unlike PPC, SEO does not reward the stupidest market entrant.  Someone that’s new to the game can’t just walk right in and snatch your #1 ranking.  Granted, they can spend some money and eventually get there, but it’s not going to be immediate and you’ll probably see it coming.  (All you have to do is watch the search engine results for your favorite keywords and see who’s creeping up on you).  So, unlike PPC, the presence and skills you build in SEO-land are much more sustainble and defensible.  In fact, if you’re out raising money, being able to demonstrate that you’ve got strong rankings for traffic-generating keywords is a major, major plus. 

4. Create content that kicks butt.  It’s really simple.  If you produce things that are useful/interesting to your target customers — you win.  You win by drawing people in to your business not because you had the largest marketing budget, but because you created something of value.  The kind of stuff that people tweet about, link to in their blogs and and share with their friends.  That’s magical.  The type of content can be varied.  At my startup HubSpot, we’ve tried lots of different things: “normal” blog articles, music videos, parody videos, songs, cartoons — and of course, free marketing tools.  For most startups, if you took every dollar you would have spent on advertising to try and beat your prospects over the head in the hopes that they’ll buy from you and instead spent that dollar on actually producing useful content, you’d win.  Seriously win.  This worked so well for us that almost all of our increase in marketing spend is allocated towards hiring people that can produce content.  They make videos, write blogs, create research reports and develop software tools.  The beauty of this content is that long after you’ve invested in creating it, it’ll continue to generate traffic and leads.  To this day, some of the early articles I wrote for our marketing blog drive consistent cash into our bank account.  We don’t have to spend a penny for those leads.  I’ll summarize again in four words:  Create content.  It works. 

So, I want you to imagine this:  Imagine that you’ve got a business that is exceptionally good at pulling customers in by the truck-load.  Not by spending money on outbound marketng (like advertising, spam, telemarketing and direct mail), but organically because they think the stuff you have to say is just so freakin’ awesome.  People are shouting from the virtual twitter rooftops about how great you are.  They’re so mind-bogglingly happy that they’re writing entire blog articles talking about your company and your product.  And you don’t have to pay them a penny.  Now imagine that some competitor emerges, raises money from Sequoia and comes after you.  Do you think it’ll be easy for them to reproduce that magic that you’ve built?  Nope.  It’s hard.  And that, my friends, is what I call a bonafide barrier to entry.

On a closing note, I’m going to ask you a favor.  It has been less than 36 hours since my book, Inbound Marketing has been available in bookstores nationwide.  Today was the big “release” day.  Already, it’s in the Amazon Top 100 business books list, and the #6 book on marketing (if you helped make that happen, thanks!)  The entire book is about pulling customers in.  I wrote it not to make money (it’s near impossible to make money writing a book), but to try and convince more people — especially startup founders, that inbound marketing is a better way to go.  So, you should buy the book. To make it easier for you, I’ll give you my personal, one-question asked, money-back guarantee.  If you buy the book and don’t find it useful, just tweet me @dharmesh and I’ll send you $25 via PayPal.  (The only question I’ll ask you is “what should I do to make it useful so people that read the next edition don’t waste their time?”).

Oh, and for whatever reason, if you owe me a favor (or $25), this is a great karmic-loop way to pay me back. For some reason, even though the money made is miniscule, I get some emotional gratification from seeing the book do well.  And, $25 is a small price to pay for my emotional betterment, don’t you think?  OK, that’s enough guilt for one blog article.  Go buy the book on Amazon.  Then, copy-and paste this message into twitter — “I let @dharmesh talk me into buying his book (http://InboundMarketingBook.com). You should too". 

Or, just click here to tweet it.

Thanks a bunch for your support and apologies for the shameless promotion this time (I don't do it that often).  I promise to get back to my regular shameful promotion next week, once the newness of being a first-time author has worn off.

Oh, and what do you think about exceptional marketing being a barrier to entry?  Agree or disagree that this could work?