SoftwareCEO Exclusives |
© Copyright 2004 SoftwareCEO Inc. |
by Bruce Hadley, SoftwareCEO
We recently had the chance to talk to Sabrina Horn, president and founder of Horn Group, one of the top technology communications and marketing firms in the country.
Horn Group has a list of current clients and past clients that most marketing firms would die for. (And, when a firm lists Geoffrey Moore among its recent testimonials, we're inclined to pay attention.)
Although they've done work for some huge software companies, most of Horn Group's work tends to center around startup and emerging firms. This isn't to say they're a lowball outfit—far from it—but they do understand how to make more out of less, given smaller companies' thin budgets and lack of traction.
Therefore, we focused our entire conversation with Sabrina Horn on a single question: How much money does a small software company—say, $10 or $20 million in revenue—need to spend on marketing? What's she seeing among her clients?
Marketing budgets come in two sizes: thin and thinner
"The marketing budget varies from 3 to 6 percent of revenues, depending on how aggressive you are," Horn says. "And, it depends on whether you're in the B2B or consumer space; consumer-oriented software companies would trend more to the 6 percent figure."
That sounded low to us; is that 3 to 6 percent all inclusive? Does it include salaries, benefits, marketing overhead, everything?
Yes, Horn says. "Coming out of the last couple of years, I would say it's going up, but right now, it's a fact of life; that's where marketing spending is. If you're talking about a $20 million company, what they're doing is PR, no ads, a few webinars, and some e-marketing types of campaigns—that's pretty much it."
Of course, even 3 to 6 percent represents a pretty broad range. Your software product price, technical complexity, and particular market will all work to push your marketing spending up or down, Horn says.
"With a low-cost product, for example, you can do much more on the Web, because your software is easier to explain. But if it's $300,000, it's an enterprise sale, it's more complex, it may involve an integrator, and it's a more complex message.
"You're talking to CIO magazine instead of PC magazine. I think the threshold is around $100,000 for an average sales price—that's when the message gets complex, there are probably several modules involved, and integration becomes an issue.
"As far as markets go, financial services is more difficult, because there are so many people chasing it. It's a very competitive field, and there are so many different splinters; slicing though that can be more complicated and might involve things like research, which people in marketing have not spent a lot of money on lately.
"Healthcare and the public sector, on the other hand, are such inner-circle markets. There a couple of trade shows every year that everybody goes to, and everyone knows everyone; the marketing expense there is getting into that insular network."
The other big variable, of course, is your company's current position in the pecking order. I.e., are you a name-brand player, or are you struggling to get someone—anyone—to pay attention to you?
"If you're a tiny company, you could spend your entire marketing budget on PR," Horn says; her firm's retainers average $7,500 to $10,000 per month.
"When we start with a young company, they're not doing any other marketing besides PR. After they get their first customer, then they'll start on other things, like trade shows and webinars or location seminars."
Also, with the young software firms, in-house marketing salaries are tiny or non-existent, Horn points out. "Often, the CEO hires the PR firm and works with them for the first one or two years; the company doesn't even have a VP marketing."
OK, with those "your-mileage-may-vary" caveats out of the way, we asked Horn to walk us through the details of the marketing budget for a hypothetical $20 million software company. Let's assume they're going to spend 5 percent of revenues, or $1 million, on marketing; how would she divvy that up?
$150,000 to $250,000 on public relations
(15 to 25 percent of the marketing budget)
"There are three kinds of PR for early-stage companies," Horn says. "To create a new category, which requires a lot of evangelism, analyst relations, and roundtable dinners; to be listed as a company within an existing category, meaning you want to be asked to the dance; and, third, to move up within the category you're already in.
"If I were a marketing VP I would probably hire a PR firm to do a project for me—a product launch, for example—and then see how it goes.
"After six months, I would look to see how that's helped in my sales pipeline. You need to have the right tracking mechanisms—something as simple as an ACT! database or salesforce.com—so that when an inquiry comes in, there's a button they can push to indicate it came from this or that article."
With our hypothetical $20 million software company, there would, of course, be customers that could be referenced in the PR work. If you don't already have referenceable customers, however, the PR challenge is, well, more challenging.
"We're doing a PR project for an under-$5 million software company right now, and it's $40,000 for four months," Horn says. "They're not spending on anything else. In the second half of the year, they'll increase their budget, hopefully because they've gotten a couple of customers.
"But without customers, it's all about messaging and positioning, trying to figure out how you're different. And, it's analyst relations—to get their feedback and, hopefully, their support when they go out and talk to the press."
Although analyst relations is a specialized field, most PR firms will tell you they can handle analysts, Horn says. But it is a different game than the media world, and you shouldn't automatically assume your PR account rep is qualified to help you with industry analysts.
"Look for a list of people they know, and reports they've helped analyst firms generate," she says. "Their references should include clients as well as analysts and editors."
In addition to these specific components, don't forget that your PR effort must include what Horn calls "air cover": tracking the editorial calendar opportunities, at least the major ones, within your target market.
$150,000 on Web-related stuff
(15 percent of the marketing budget)
"At that number, I m assuming a good Web site is already in place," Horn says. "With this budget, we could do some basic upgrades, and maybe add a Flash demo that could be used by sales reps and at trade shows."
We asked Horn for the most common failings of software company Web sites, and she quickly rattled a litany of ills:
"Poor design, too much content, not enough white space, buzzwords, pages that don't give you enough information about what a product does, or a site that is difficult to navigate.
"It's the simple things that companies forget about, like details about how to find you, a corporate phone number.
"Or, there's no 'In the News' section. I'm amazed how many people actively do marketing—the CEO speaks at a conference, or an article is published—and nobody bothers to get that stuff up on the Web site.
"You must have marketing involvement in the site, then divide and conquer the duties. One person writes the content, another does the HTML coding. Marketing can't do it alone, but neither should it be the techie's domain."
For examples of Web home pages that live up to Horn's demands for clean, open design, click here; you'll find samples from four software companies and one venture capital firm.
$50,000 on e-letters and e-surveys
(5 percent of the marketing budget)
Your subscribers are your existing customers and prospects, Horn says. "Start off once a quarter, then go to every other month if they're successful," she says.
"Less is more: Two pages is a good length. You're going to talk about your enhancements, your new product capabilities, your customer service department, and your success stories, and you'll throw in upcoming events. Get people to check out this conference, or link to this article.
"We have a couple of clients who do them every month, and it's the most effective communication tool they have with their customers. [For two good examples, see the e-letters from Norwest Venture Partners and PointBase.]
"E-letters help you build the pipe, even though they don't necessarily close the deal. Still, if you have more leads to close, you're bound to get more sales."
The most common mistakes here are bad design, Horn says: Too much content, too many links, not enough white space, white letters on blue backgrounds—all of which make your e-letter hard to read. In addition, she has harsh words for overuse of animation and gimmickry.
Above all, however, the writing has to be top-notch. "The writing has to be good, strong business writing, and have a strong appeal from an ROI standpoint, not a vendor standpoint," Horn says. "You have to put yourself in the shoes of the customer or the prospect.
"The marketing person needs to create an outline for the next issue of your e-letter: Here's the focus, here's the theme." However, that marketing person may or may not be the right person to do the writing, Horn says; many companies would be better off with a professional, outside writer. If you follow that route, budget $5,000 to $6,000 per issue for the writing alone.
"In a larger company, the talent may live in-house," says Horn. "When we did work for PeopleSoft—at the time they were about $100 million—they had a person in charge of all publications, excluding PR. She was the in-house writer, and she was a professional, and she was very, very good."
Horn puts electronic surveys in the same bucket with e-letters, because they serve the same basic purpose: enhanced communications with your customers and prospects.
"Surveys are great because when you get the right information back, you can publish the results," she says. "And, that information has a shelf life of six to nine months: You can use it in your PR, in your collateral, on your Web site, and so on.
"The key is to pick a controversial topic that speaks to the problem that your technology solves. Then, you need to ask the questions in such away that elicit the answers close to what you want. Above all, never try to do more than five questions in a single survey."
Horn gave us a two-page handout that describes a survey Brightware did and how they leveraged the results; click here to get that.
$100,000 on whitepapers and collateral
(10 percent of the marketing budget)
Within this category, for our hypothetical $20 million software company, Horn puts the split at $25,000 to $30,000 for white papers, and the other $70,000 to $75,000 for collateral.
"You need datasheets, brochures, and you need a CD with everything on it," she says. "Those materials can of course populate the Web site and be used over and over. White papers are more useful with the higher-end enterprise opportunities; for a low-end product, they're useless."
Even though Horn's a fan of white papers for enterprise apps, she's got a beef with the way too many of them are being done nowadays.
"There's an issue with white papers," she says. "Originally, white papers were used to create an argument around a topic; for example, client side architecture versus mainframe computing. A white paper was structured around two points of view, with the obvious purpose being that the argument you're making wins support for your company.
"Now, white papers have become more overtly self-serving, and I think it's that's a bad trend. A white paper is supposed to be, by definition, a philosophical document for the more technologically oriented people who think about things at that level: 'Why should I do this instead of that?'
"If you just want to give me a long description on your product, give me a product backgrounder—but don't call it a white paper.
"And, a white paper is not written by a marketing person; it should e written by a CTO or somebody of that ilk, and edited by a marketing person. It should be five to 10 pages long and include some graphics, information about the topology of your system, so that the user can see how things connect; it should be a look under the hood."
What about the popular trend of paying industry analysts to write white papers for you? "I'd be cautious with that," Horn says. "I'd save that for when you're a $30 million company.
"When you're at $20 million, and you've got a $1 million budget, you have to focus on a few specific things; a paid-for white paper is a nice thing to have, but it may not fall under the threshold of this budget."
$100,000 to $200,000 on events
(10 to 20 percent of the marketing budget)
Once again, the nature of your product will determine the kind of public events you host, Horn says. "You need to have physical events if your message is more complex, which is usually determined by technology and price.
"In-person events are more apropos for the enterprise providers. For software that's plug and play, you don't need a seminar. If it's a lower-end product, with lower sales prices, do it online, for far less cost."
Webinars can be under an hour, but physical events are usually half a day. With that much time to fill, it can be a challenge to keep it interesting. "The Web creates efficiencies," Horn says. "Less is more."
The hobgoblins of the events world, Horn says, are poor planning and technical glitches. "You can put together a great presentation with a live global connection, and then the mike doesn't work," she says. "There's no greater buzz kill than having some technical difficulty.
"We recently did some events in New York and LA for a client, and they worked well, but there was a ton of preparation involved. We had a panel discussion with analysts and industry partners—we knew what question would be asked, we rehearsed with everyone ahead of time, and everything worked."
By the way, it's always a mistake to try to host one of these public events—physical or virtual—with your company alone. "It never makes sense to do it on your own," Horn says.
"You need the third-party endorsement. It could be one of your integrator partners, but you need someone—and I think you need more than one."
$100,000 on trade shows
(10 percent of the marketing budget)
Horn's rule for picking shows is pretty simple: You go for the best match between the people you want to sell to and how many of those people are a particular show.
"If you sell to CIOs, and CIOs are at the conference, you go," she says. "Would you go to Comdex? No."
The $100,000 budgeted here may sound like a lot, especially for those of you who are used to carrying your own pop-up display for a 10x10 booth, but remember, we asked Horn to make her numbers all-inclusive. So, that $100,000 has got to cover your booth, all shipping, travel expenses for your staff, advance and follow-up publicity, and so on.
"You don't have to have super-duper booths with babes in knockout dresses, but you don't want to have a tabletop display, either," Horn says. "Our clients usually go to two trade shows a year, and then maybe add on a few smaller regional events."
$100,000 to $200,000 on a user conference
(10 to 20 percent of the marketing budget)
"For the higher level enterprise sale, user conferences are incredibly useful," Horn says. "For the $500 point solution, no.
"I remember a PeopleSoft user conference—we helped orchestrate them for seven years—and it was like a love-in. They just did it right: they had 'birds of a feather' discussion groups for vertical industry market customers, so they could talk about their businesses in clusters.
"They had 'talk-back' sessions, they had "people dollars," that customers could use to place their votes for features in the next product version. They had entertainment at night, and it wasn't like prancing horses with glitter—it was just entirely apropos.
"People don't want to see software companies spending all their money on something ostentatious, but they want to go to see who else is using their product."
To that end, Horn suggests that user conferences not be strictly limited to current users. "Prospects should be invited, selectively," she says. "It depends on what stage they're at."
Financially, your goal with your user conference should be to use your budget—Horn's allowing for up to 1 percent of your company's total revenues—to bring your customers an affordable event with tons of value.
"It shouldn't be a money-losing event, but neither should it be seen as a money-making event," she says. "If it's successful, you'll end up making more money anyway."
Our hypothetical $20 million software company will spend its $100,000 to $200,000 on the conference venue, food, keynote speakers, entertainment, proceedings, book bags, and so on.
Plus, there could be a fair chunk of travel expense in there, depending on where you hold your conference. Should it be in your home town? "If your hometown is near Bethlehem Steel, no," Horn says.
"I think you have to have a nice location. I think you choose a nice place where there's the greatest cluster of your customers. After all, it's about the customers, not the employees: You've got to go where the prospects and customers are. So, the most critical question should be, 'How easy is it to get to?'"
Nothing on print ads, nothing on direct mail
(0 percent of the marketing budget)
Some will disagree with Horn's allocations, of course; that's the nature of marketing: It's a slippery beast.
"Budgets need to be able to change," Horn says. "It's important to be able to be opportunistic about things happening in the industry that you want to capitalize on.
"You don't want to be sitting there stuck to your plan because of your budget. That isn't to say that you need to create a slush fund, but you need flexibility."
Another note on these numbers: We told Horn to assume that our $20 million hypothetical company doesn't need a complete makeover. I.e., corporate logos, taglines, product names and packages, and overall corporate identity are, in this exercise, are all up to snuff.
If your company needs an overhaul in the identity department—and you may want to seek objective, outside opinions on that front—you'll need to shovel a more money into virtually every on of the categories above.
A word on measurement
Finally, before you spend any money, Horn cautions that you need to have the systems in place to be able to determine whether it was money well spent.
"At the end of each month, at the board level, there has to be some accounting for what you're doing in marketing and what the results are," she says.
"And at the end of any major project—a new Web site, a user conference, a product launch, whatever—you want to track how well that went over.
"Every marketing program needs to have a goal and objectives set in advance, and those objectives have to be measurable. The measurement should take place every month, or within a reasonable time frame. There are always lessons learned."
And a few words on mistakes
Horn has worked with hundreds of software companies over the years, so she's had plenty of time to watch false steps as well as positive strides.
When it comes to marketing money, we asked, what are the most common mistakes that software companies make?
Misspent marketing money #1: Falling back on tradition or ego. "Usually when companies spend not enough money, or spend it in the wrong places, it's because they're falling back on tradition," Horn says. "They do things the way they've always done it.
"Or, once in awhile, you've got an ego involved: Someone wants to put on a bunch of press conferences, because he wants to be seen—not because it would be good for the company. You have to leave your ego at the door."
Misspent marketing money #2: Following your closest competitor. "You can get blindsided by your competition, and then it gets personal, and then you become the also-ran," Horn says. "You have to play in your own sandbox, and you have to do things in your own way."
Misspent marketing money #3: Ignoring your "customers" and your customers. Every marketing person has customers at two levels: sales reps and end-users. Ignore either one of these groups, and it's guaranteed you'll flush money down the drain.
"You have to talk to your sales guys and your customers about what works them," Horn says. "Ultimately, everything you do is designed to support them and inform them."
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