I had to pass this story onto you. It’s soooooo true and, unfortunately so common.
This is Perry Marshall’s blog posted yesterday.
To introduce the story…
Perry sits on the board of a startup that has been funded with equity investment. They have a high profile board including Perry. He is trying to get them to do some market research. A subject near and dear to my heart.
Here it is…
Well somehow or another the friggin’ research never really gets
done. Why? Because even though I’m the champion of this idea,
it’s not like I’m getting paid to carry it out, meanwhile El
Presidente has a million distractions.To their credit, what they do have is hundreds of conversations
with people in their market. Plenty o’ trips to conventions and
meetings with vendors in that market. So it’s not like they
don’t know what people want.They are legitimately IN the market listening to people. So I
don’t scream too loud.By the way, we don’t have a product yet. The product was going
to be a paid membership website but mid-stream they decide to
make the membership and the use of the software free, then sell
other things to the members once they’re in the door.I decide that’s a good decision, a decision which 3 years later
I still think was wise.One thing that strikes me as a little odd is that there’s always
some Drama Queen contention going on somehow, somewhere.Like for example there’s this teeny tiny nothing of a company on
the east coast - I’m not even sure it’s even a real company -
who is bickering with El Presidente that we stole the guy’s idea
(not true) and he’s trying to reach a legal settlement with him
via threats of dragging us to court.The east coast guy seems a total crackpot but El Presidente’s
playing patty-cake with him anyway.Or for example there’s the company sales manager making $120,000
a year who so far as I can tell does absolutely nothing other
than try to sell banner ads to vendor companies, which is the
financial equivalent of holding a bake sale.Eventually the sales manager gets fired and then sues the
company for discrimination because the sales manager is 1/16th
American Indian or some such thing.Meanwhile every time we have a board of directors meeting, El
Presidente plies us to find more investors.There are two Financial Planners on the board and they know all
kinds of people with money and every month they seem to somehow
find someone who is willing to invest $25K, $50K, sometimes even
$100K of Angel Money into this company, which is burning cash at
a rate of $1 million per year.Meanwhile we still do not have a product and we still have not
proven in any way, shape or form that we can buy traffic for
$1.00 and sell them something for $2.00.So I endure these stupid board meetings and steadfastly resist
their efforts to get me to find investors.I stick to my instincts, which are: “Dude, when you can buy ONE
dollar of advertising and turn it into TWO dollars, you will
find all the money you need to make this thing grow. Believe me,
I know plenty of people who have enough money to put it into a
deal like that.”Well anyway, finally El Presidente decides it’s time to get some
traffic and he invites me to build them a Google campaign. Which
I do.I did something which I now teach: I started with ONE keyword
and spent 2 months tweaking ad copy, display URL’s and Content
Network settings.On the very first day we got sales leads - free membership
trials - at a Cost Per Action (CPA) of $14.00.El Presidente, by some MBA-ish sort of calculation, had
predicted and hoped that we could get membership signups at a
cost of $20.00 or less so he was quite happy about this. News
traveled ’round the company and among investors like wildfire.Well you know how we do things in Planet Perry - the first day
on Google is just an early, crude approximation. One week later
I had the CPA down to $6.00 and a month later, after adding the
Content Network and a bunch more tests, we had it down to $3.00
per signup.The traffic was coming in like an avalanche.
I forget the exact details but I think we got 30,000 new members
in a span of several months with a 16% signup rate on the
website. The cost of that Google traffic was far and away the
most productive $100K the company ever spent on anything.You’d think that victory would have bought me enough credibility
for them to hang on every word.Sorry, pal - not so fast….
I naively believed that if we were accumulating members at a
rate of many thousands per month, El Presidente would finally be
moved to follow my suggestions of how to actually SELL things to
this audience.The company was in an education related business and it was
painfully obvious that they could easily offer online courses.
Which as you know, I very much know how to put together.“El Presidente, see how I deliver training and education online?
We need to do exactly the same thing.”I would get promises and promises that we would. But we never
did.Instead, for some reason, the guy would go all over the country
like Don Quixote charging windmills, and he would put together
these crazy deals. He spent a year and nearly $100K putting
together an e-commerce website selling commodity products with a
15% margin that had ZERO chance of EVER being profitable.We would get into fights at the board meetings and he would
retort that my own training programs were unprofessional and he
would not dream of offering something so slipshod to his
customers. He said the customers would have his head on a stick,
their standards were much higher than those of my silly market
of ragtag entrepreneurs.As we have these conversations, the company is barely making a
dime and burning $100,000 per month.Every 3 months we have a Board of Directors meeting and he
presses us for more investors.One day last summer all us board members get a memo from Tom
asking us to increase our commitment to the company and pull
harder to get more investors and secure our future as the
greatest company in this space.I couldn’t stand it anymore, and I sent this email to everyone:
FROM: PERRY MARSHALL
TO: ALL BOARD MEMBERSThere is nothing you could do to convince me to ask any of my
friends or colleagues to invest in this company. In fact I think
to stand up in front of a group of people and pitch them on
investing in [ACME Corporation] is an irresponsible act of
deception.The strategy this company is using is a disservice to
shareholders and if it doesn’t change drastically, [ACME
Corporation] will fail.Two years into it, this operation still does not even qualify as
a business.Why?
Because we still do not have anything of profitable substance to
sell to our customers. No one has demonstrated that this company
knows how to “make one dollar.”That’s when the yogurt REALLY hit the fan.
I’ll tell you what happened next in Part 3…..
Here is a link to Perry’s site so you can check out Part 3 for yourselves.
I agree with Perry 100%. Find out who your customers are, what your customers want and then sell it to them. And that’s the order it must be done in. Not some random stab in the dark and if it doesn’t work then go and get more money.
