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Houston expert weighs in on marketing from an investor’s perspective

What should Houston startups know about marketing? Photo via Getty Images

Just what do investors want to see from a startup with regards to the company’s marketing? I recently spoke on this topic to a cohort of early-stage technology startup entrepreneurs at Softeq Venture Studio, an accelerator program that helps founders build investable technologies and businesses.

Here are some of the highlights of our discussion.

Building the base for marketing efforts

It’s important for company founders to think about the bigger picture. When we’re talking to clients at Craig Group, we talk about market growth and revenue growth, not just marketing. Because that’s what the investors are thinking about.

Things like the EBITDA margin and recurring revenue are important to investors. They prefer predictable revenue growth rather than uneven or project based fluctuations . Investors also expect the founders to have a plan for the scalability of their business.

Entrepreneurs need to consider how they are going to scale and where they are going to scale. What markets are they going to address and what’s the plan for that — what’s the timeframe?

An exit plan is also a must because even if the founder is planning on staying in the business, investors are seeking a return on investment with another transaction after the successful growth, and profitability, of a company. Founders have to begin with the end in mind.

A marketing strategy that appeals to investors

There are hundreds of private equity firms interested in lower middle-market companies, defined by having between $2 million and $20 million in EBITDA, or earnings before interest, taxes, depreciation, and amortization. It’s competitive but there’s a lot of money to be put to work.

Startup founders need to focus on the basics first when setting the expectations for marketing investment. And they need to know who their customers are and where their ideal target audience is.

Considerations include the serviceable obtainable market (SOM) which is what the company thinks that they can logically support today. That is separate from the serviceable addressable market (SAM) and the total addressable market, which is what a company will work towards penetrating.

You want to know how many of these potential customers exist, and to do that, you need data. If you don’t have it, you can look at adjacent markets. Build the customer acquisition cost that you can afford. It’s not as important what the number starts out with but how it trends, as it should become more efficient over time.

The marketing investment will grow top-line revenue, target the most profitable customers, be able to reach potential customers in more scale and more quickly than sales efforts alone, and elevate the perception of the company prior to the investor’s exit.

Key parts of a strategic marketing plan

The most expensive customer is a new customer.

In the marketing cycle, "pre-awareness" requires the biggest marketing investment. If potential customers don’t understand what a product or service is, it is going to cost the company a lot to educate them on a new category, so that is best left to those with more resources than a middle-market startup.

A more cost-effective way to reach customers is during the research or comparison part of the marketing cycle. You can demonstrate what differentiates you from your competitors. Are you selling on price? Are you selling on service? Think about a side by side comparison.

Once the buyer has reached the decision and loyalty part of the sales funnel and purchased from the company, then the marketing has been effective, and customer retention becomes a key focus.

In complicated business to business sales cycles, there might be a number of people involved in making the decision to buy your product or service. What is important to the IT decision maker might not be important to the potential customer in finance or purchasing. You need to have compelling messaging for all of them, which means you need your marketing to be like your customer, and meet their needs directly.

Sales and marketing 101

Many middle market companies don’t pay enough attention to their front door, which is a company’s website.

Your potential customer is going to be on your website often but certainly 20 to 30 minutes before a sales meeting. And if they don’t find something compelling, they probably won’t be inclined to move forward with your product or service.

Digital strategy and content geared toward both awareness and lead generation can help with the ultimate goal of profitability.

Entrepreneurs shouldn’t spend on marketing tactics until they have a solid strategy, but once they do start investing in advertising or other marketing tactics, they should be able to get metrics and ROI on their campaigns from their marketing partners.

It is important to focus on efficient top line revenue growth as a business grows and scales. Digital marketing is an important part of the overall growth plan, and should not be overlooked. The clock starts ticking on profitability growth once a business owner partners with investors. Make sure your business has an effective plan to meet the goals set out.

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Libby Covington is partner at Houston-based The Craig Group, a strategic digital marketing solutions consulting firm. Her specialty is in understanding how sales and marketing work together effectively.

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Building Houston

 
 

This Houston staffing firm has tapped into tech to support the growing gig economy workforce. Photo via Getty Images

As the independent workforce continues to grow, a Houston-based company is aiming to connect these workers with companies that match their specific needs with a new digital platform.

FlexTek, a 14-year old recruiting and staffing company, launched a first gig site tailored to the needs of the individual worker. The platform, Workz360, is built to be able to manage projects, maintain quality control, and manage billing and year-end financial reporting.The company is also working to expanding the platform to provide infrastructure to assist independent workers with education, access to savings programs, tax compliance through vetted third-party CPA firms, and hopes in the future to assist with access to liability and medical insurance.

With a younger workforce and a shifting economy, the “gig economy,” which is another way to describe how people can earn a living as a 1099 worker, offers an alternative option to the corporate grind in a post-pandemic workscape. Chief Marketing Officer Bill Penczak of Workz360 calls this era “Gig 2.0,” and attributes the success of this type of workforce to how during the COVID-19 pandemic people learned how to work, and thrive in non-traditional work environments. The site also boasts the fact it won’t take a bite out of the worker’s pay, which could be an attractive sell for many since other sites can take up to 65 percent of profit.

“In the past few years, with the advent of gig job platforms, the Independent workers have been squeezed by gig work platforms taking a disproportionate amount of the workers’ income,” said FlexTek CEO and founder Stephen Morel in a news release. “As a result, there has been what we refer to as ‘pay padding,’ a phenomenon in which workers are raising their hourly or project rates to compensate for the bite taken by other platforms.

"Workz360 is designed to promote greater transparency, and we believe the net result will be for workers to thrive and companies to save money by using the platform,” he continues.

As the workforce has continued to change over the years, a third of the current U.S. workforce are independent workers according to FlexTek, workers have gained the ability to have more freedom where and how they work. Workz360 aims to cater to this workforce by believing in a simple mantra of treating your workers well.

“We’ve had a lot of conversations about this, but we like the Southwest Airlines model,” Penczak tells InnovationMap. “Southwest Airlines treats their people very well, and as a result those employees treat the passengers really well. We believe the same thing holds true. If we can provide resources, and transparency, and not take a bite out of what the gig worker is charging, then we will get the best and the brightest people since they feel like they won’t be taken advantage of. We think there is an opportunity to be a little different and put the people first.”

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