Co-founder and Product/Marketing at Shop Phone. Growth consultant. Every now and again I write about the small business advantage.
A Call for Focus on Marketing Organization
Over the past decade business agility has exploded in its adoption. Agile product development, Lean Startup, Kanban, Scrum, Minimum Viable Products, etc. have boomed into the mainstream enterprise environment. Executive leadership across multiple industries are touting agility as an organizational priority. All of this comes on the heels of a fundamentally disrupted business environment. The exploding adoption of the internet, mobile-first experiences, and growth in computing power has paved the way for brand cultural shifts to take place in a matter of weeks, versus years in a previous generation. Mix these market characteristics with the global pandemic response and work-from-home consciousness and you have an organizational environment that demands agility, transparency and collaboration of it’s leadership.
Traditionally these “new ways of working” priorities were mandated within the walls of product development and innovation functions. And why not? Isn’t product the core value proposition and differentiator? But what about Marketing, or the Growth functions? Surely these functions are just as important.
In January of 2020, the billion dollar online mattress retailer, Casper, filed to go public. In its filing it revealed revenues and budgets giving us a glimpse of what it took to grow at such a fast pace. In 2018 Casper spent $106 million on sales and marketing, comprising about a third of its overall sales revenue. That budget expanded by 23% in 2019. Now compare this to their spend on research and development, seemingly core to their business model of developing better mattresses. They only spent $28 million on research and development since 2017 to September 2019. That’s almost 11x more spent on sales and marketing than product development. The amount of money they spend on acquiring customers is humungous (time will tell if this is sustainable).
Maybe this type of spending makes sense in retail where product innovation and development isn’t as crucial as long term customer retention and new customer acquisition. So what about technology companies who earn their competitive advantage through innovating new products and services?
Shopify, an online commerce platform that powers over 1 million online stores, and the platform most of our readers are using to power their online stores, spent about $25.9 million in 2014 for research and development. In that same period, they spent $45.9 million on marketing. That’s 77% more on sales and marketing over developing the technology product that they’re trying to sell and market in the first place.
In another technology example, Fastly, an engineering-heavy cloud infrastructure company that develops tools for programmers to serve faster user experiences, we see a similar story. In 2018 Fastly spent $34.6 million on research and development. But they spent $50.1 million on sales and marketing. Again, this is a company that exists to provide innovation in cloud engineering, their core value proposition is to solve extremely difficult problems for hundreds of enterprise customers, and yet they spent approximately 45% more on sales and marketing than innovation.
The story here is clear, pick any company, even those heavy on innovation and product development, and investigate their annual reports. You’ll quickly see this pattern of sales and marketing budgets far overshadowing research and development budgets. What does this mean? It means we’re moving to an increasingly competitive world, where even disruptive innovations don’t guarantee adoption without a heavy marketing effort to back it up.
So while innovations in technology, tools, processes and frameworks to help product development teams (like Agile) is interesting and important, it seems it would be more important for these organizations to spend the same level (or more) of time and attention towards their marketing operations. If the business’s product is like the car, then marketing should be considered the wheels. It’s where the product (car) hits the road (market landscape). If enterprise firms are ready to spend tens of millions of dollars transforming their product development methodologies from waterfall to Agile, why is there no discussion about such a similar shift towards new marketing methodologies?
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