Today marks the last day of the year. I thought while we’re bidding adieu to the year 2020 it’s worth to document this article and look back at the year from a business lens. What an unusual year it has been. A global business transformational year, if you will.
Digitalization has been the lifeline for businesses since Covid-19 pandemic
Earlier in March this year the entire human race entered a pandemic state, and had since changed the way we interact with each other to curb close contact – which come to think of it, it’s radically transforming our day-to-day business routine as a social being. So why is that a transformational year you ask, when this is not the first pandemic in human history?
- Firstly, though we may share the similar economic impact as with the previous pandemics; in this day and age there are businesses that are able to pull this through because they are holding dearly to the ‘digitalization’ lifeline.
- Secondly, ‘digitalization’ lifeline is not just a temporary measure to keep businesses afloat during this pandemic (which we are still going through at the point of writing). After a 7-month-long race (and counting) to find the effective Covid-19 vaccine, and who knows how many variants of mutations the Covid-19 may end up, we could only expect that digitalization is the way to move forward.
Digital is the mainstream media now
A case in point, McKinsey shared a report on how Covid-19 pandemic sped up digital adoption across the world.
Did I mention there are more than half of the world population today active on internet already?
With digital being the mainstream media now, the demand for digital marketing skills had subsequently escalated. According to McKinley Marketing Partner’s 2018 report, there are 59% in demand for digital marketing talents, but with active supply at only 19%; in the following year the demand rose to 61%. With such a promising growing trend one can’t help but to question what are the core functions of digital marketing specialty.
How did digital marketing started
Circa early 1990s, the first digital banner ad was born.
This little rectangle purchased by AT&T on HotWired.com had since marked the historical milestone in the marketing industry. For the first time, we were able to carry out marketing through a digital medium. Ever since we’ve found this new marketing avenue, it wasn’t being coherently assimilated into marketing as a whole, instead it became a new breed of marketing that has got into the ‘digital marketing‘ pigeonhole. The title itself is quite explanatory that it distinguish digital marketing from non-digital marketing in the first place – and that is exactly where the conundrum lies. The idea of singling out ‘digital marketing’ became the stereotype that marketers are conformed to the classification of Digital Marketing VS Traditional Marketing. In one of my earlier post I’ve briefly examined the issue of digital media ROI, where over 4000 digital marketers around the world being surveyed, 63% of them are not confident with the ROI measurement today. Such skepticism holds true, simply because the entire sales cycle does not end with ads spending on digital channel only. It is not justifiable to just bank on marketing channels for sales return, let alone the digital channel on its own.
That was the history on how we got ourselves into ‘digital marketing’, when the digital population in 1995 was merely reaching 16 millions people, only 0.4% of world population then. That explains why we pigeonhole the process of “marketing through digital channel” in an outlier box named ‘digital marketing’ where it was just a supplementary to the mainstream media. But what if digital is no longer a supplementary media now? Is ‘digital marketing’ still relevant?
What does a successful business look like nowadays?
An investment on building any businesses regarded as success when it managed to reap the highest returns possible. While there are both private (venture capital) and public market to invest in companies stocks, it’s learned from The Cambridge Associates Q1 2019 venture capital index and selected benchmark statistics, that for the past 25 years the venture capitals’ internal rate of return (IRR) had outperformed the public market by at least 108%. The average IRR to invest venture capital in private companies performed at 25%; whereas public companies could only perform half of the result.
Let’s zoom in on the venture capital portfolios and especially take United States as the benchmark, since there were over 67% of total global venture capital investment went to US market in year 2006-2014 (although it has been a declining trend since last year), it’s worth noting that the software industry has been the predominant sector in U.S. venture capital market where in year 2010 alone it was the largest investment sector according to a report released by PricewaterhouseCoopers and the National Venture Capital Association; this trend continues to prevail till the recent years according to Dow Jones’s VentureSource. In fact the technology sector is also taken up the biggest pie in 500 high-growth APAC companies mentioned in my earlier article.
Some multi-billion dollar VC backed software companies worth mentioning here, and they have been the poster-child when it comes to achieving rapid market growth, namely
- Dropbox: founded in 2007 and attained $10.2B net worth as of December 2020
- Airbnb: founded in 2008 and attained $89B net worth as of December 2020
- Uber: founded in 2009 and attained $93.27B net worth as of December 2020
- Snapchat: founded in 2011 and attained $72.7B net worth as of December 2020
- Linkedin: founded in 2002 and acquired by Microsoft at $27B value in December 2016
So what can we learn from these tech startups that contributed the most high-returns for venture capital markets?
How do digital-native startups grow
First of all, the most common denominator for successful VC backed software companies is that they are all digital-first company, these companies are fundamentally digital-native because:
- Their products or services exist primarily or even entirely on digital channel.
- Digital is the predominant channel for business operation and fulfilment.
- Due to its digital capacity the company aptly use data to learn and innovate its products or services
- The marketing distribution are driven by digital media so there isn’t a sub-category as ‘digital marketing’
Secondly, these digital-native companies beat the odds by attaining rapid market growth because GROWTH IS THEIR ULTIMATE TRUE NORTH. It means besides finding scalable, repeatable and sustainable ways to grow the business, nothing else matter.
Sean Ellis was the person first coined Growth Hacking and this is how he put it:
A growth hacker is a person whose true north is growth. Everything they do is scrutinized by its potential impact on scalable growth.
The reason why Sean, who held marketing leadership role for tech startups from launch to IPO (including Dropbox, the multi billion unicorn) started his blog startup-marketing.com was because he realized the need for startups to break with the past from traditional marketing and advocate growth hacking or interchangeably growth marketing instead. He later published a book Hacking Growth: How Today’s Fastest-Growing Companies Drive Breakout Success and this is an excerpt on how he coined the term growth hacking:
…the emergence of a rigorous approach to fueling rapid market growth
through high-speed, cross-functional experimentation, for which I soon coined the term growth hacking.
Growth marketing is a data-driven practice
Growth can only be validated when the relative difference between two data points are positive, and for that we will need data to be tracked throughout the entire growth marketing process because nothing else matter if we are not able to validate growth.
In other words, data is the backbone of growth marketing practice.
Do we really need to track everything under the sun? One might ask. Ideally yes, as the more granular the data we gather, the more informed decision we could make. However, the whole idea of growth marketing is to generate rapid growth, hence a growth marketer should be prioritizing on metrics that matter. So what are the metrics that matter for growth? Before we dive into metrics we must preface this matter with the preliminary principle that every transaction happens through a funnel. Speaking of which, let’s revisit the most common sales funnel that is being applied in most businesses today.
Is this funnel framework sufficient to generate SUSTAINABLE GROWTH?
According to a research brief released by CBInsights in August this year, 70% of tech startups fail, usually around 20 months after first round fundraising. Let’s take this info and sink in for a moment – are we sure we should just dust our hands off after we successfully converted a customer to perform the ‘Action’ of purchase or subscription? With such appalling failure rate how could a startup break the spell, especially when startup finances are usually lean in the first place?
Here’s a caveat, the cost to acquire a new customer is 5 times more expensive than the cost to retain the existing one. Hence it is crucial to redefine the funnel framework by also measuring customer retention growth. Besides its cost effective advantage, adding Retention into the funnel framework could also ensure we are keeping tap on profit growth because a 5% increase in customer retention produces more than a 25% increase in profit, according to a Bain & Company’s report.
Another metric that is also extremely helpful to cut down the customer acquisition cost, at the same time also scaling your user growth is the Referral rate – how likely are your existing customers refer your products or services to new customers.
There is no ‘MARKETING VS PRODUCT’ in innovative businesses
If there is one thing we could learn from the closure of Blockbuster, Kodak, Borders Bookshop, Polaroid, Nokia, Blackberry phone, and the like, is that you will be out of business if you fail to stay relevant with the current market, even if you are a household brand. Especially in this age of Digital Darwinism where the market’s adoption in technology is evolving faster than some businesses could adapt.
To echo Darwin’s ‘survival of the fittest’ theory, it is the most adaptable to change that survive. So how can a business adapt to the most current market by having the product team working in isolation from marketing team, instead of working hand in hand to achieve common goal? To be adaptable to the market your product can’t exist in the vacuum, it needs to be relevant to the most current market demand and landscape, for that you will need market insights to innovate your product and it should be an iterative product-market feedback loop.
On the other hand, if we scrutinize the prevalent AIDA framework, we would realize the onus of customer journey’s milestone are solely on marketers; from awareness, interest, desire to action. The reality is, often times it is not a smooth sailing process to take action of purchase or subscribe, to complete this funnel it would also require product owner to be accountable for the rest of the customer funnel.
Such ‘Marketing VS Product’ underlying conundrums would then pop the question whether ‘digital marketing’ is still relevant for sustainable business growth today when the title itself is suggestive of the responsibility to market via digital channel.
When digital is no longer a choice, ‘digital marketing’ will become a legacy
Picture this: we are living in Paleolithic era where the main source of food are obtained by hunting and gathering, would you put a label to your meal as ‘Paleo’ diet? Likewise for ‘Digital’ marketing. With global digital population on the rise, it is no longer an option for businesses to invest in digital channel.
But the next questions are, do we already have the ideal framework in place to achieve sustainable business growth? What is the sustainable funnel framework, who should be accountable for funnel metrics, and how?
At the point of wrapping this up we are counting down 10 hours to 2021. Here’s to the a decade – to embrace an innovative product-marketing approach for future proofed business!