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Why Your Startup Should Take The Money and Run

In Steve Miller’s “Take the Money and Run”, he urged Bobby Sue and Billy Mack to “go on take the money and run”.

cashThe rock n’ roll classic came to mind last week when AppDirect unveiled a $35-million series C series. In an interview with BetaKit, AppDirect CEO Daniel Saks (one of the company’s two Canadian founders) said: “We don’t need [the money], but see so much value in the way we’re growing that we want to continue to accelerate that growth”.

So, you’re taking $35-million you don’t really need? What kind of decision is that? If you don’t need it, why take it?

Here’s the answer: never look at gift horse in the mouth. Translation: If someone wants to give you money, take it as long it you can live with the financial ramifications.

For startups, capital is the fuel needed to accelerate growth. It’s something most startups desperately scramble to attract, while investors attempt are selective as possible given the risk.

VC deals often hinge on three things happening:

1. The startup wants money from a VC.
2. The VC wants to invest in a startup.
3. Both happen at the same time.

If the stars align, investments happen, and everyone lives happily ever after. There is fawning media coverage, the startup enjoys the spotlight, and it’s all peaches and cream.

The reality is capital is difficult for startups to attract. Not only do startups need to demonstrate traction and high growth potential, but they have to compete against other startups AND have good timing.

Even the sexiest startups need to fit into this formula, although they likely have the luxury of multiple suitors.

Although it seems like a long time ago, the original dot-com was a perfect illustration of the benefits of “take the money and run” approach. A lot of startups (including those with non-existent businesses) raised a lot of capital from enthusiastic and exuberant investors. It was like kids in a candy store (a dangerous and fascinating experience for anyone who has actually seen kids in a candy store!).

At the time, it was amazing and stunning to see the money raised through private deals and initial public offerings. But when the dot-com bubble abruptly burst, many companies had lots of money in the bank.

The smart ones were able to use this financial clout to make it through the wreckage, and emerge as strong, vibrant businesses.

And while today’s economic landscape seems relatively healthy, it is impossible to know what is around the corner. Who know if the U.S’s economy’s fragile recovery hits a bump in the road, interest rates spike, or China experiences lower growth.

For startups, it means being pragmatic about their growth and financial needs. When a deal emerges that makes sense (whether it is something they pursued or get offered), it just makes sense for startups to consider all the options.

In many cases, the decision often comes down to “taking the money and run”, even if it is not an immediate need. It’s better to take the money when it’s available than being desperate for it.

More: Check out this Fortune story by Erin Griffith on why startups that want to raise money should do it now.

 

It’s Absolutely Okay for Startups To Say No

I had a potential startup client turn me down recently. They decided to use someone else, although I suspect they may have hit the pause button on marketing to save cash.

Like anyone looking to close deals, my first reaction was surprise given the meeting went well. But upon reflection, the startup deserves credit for saying “no”. Far too often, startups make bad decisions by getting caught up in the idea of growth.

startup strategyIt means jumping into things that don’t make sense economically or strategically. They hire people who aren’t needed. They move into offices that are too big or too nice. They spend money on stocking refrigerators rather than making people brown bag it. And as Mark MacLeod says, they raise money too early.

For startups, saying “no” is a big challenge. There is an expectation that startups, particularly those that raise capital, grow quickly and aggressively. They aren’t supposed to grow methodically. If there’s cash in the bank or a golden opportunity, the expectation is a startup aggressively goes for it.

While idling in neutral strategically or tactically is far from ideal, it is important for startups to make smart decisions. When Wattpad, for example, raised $17.3-million in 2012, it had barely spent the $3.5-million from its 2011 series A round. Wattpad’s Allen Lau ran a lean and mean operation that let the company grow without wild spending.

The trick for startups is balancing growth and spending. It means being able to know when spending makes sense, as well as spending on the right things. It also means resisting the temptation to spend when it doesn’t make sense or the timing is wrong.

The reality is many startups expire because they run out of money. They have good ideas and smart people but no cash to keep the lights on. In hindsight, many identify multiple examples when money shouldn’t have gone out the door. But hindsight is 20-20, particularly when you’re in the eye of the hurricane.

For startups looking for a better approach to spending, here are some tips:

1. Focus on need-to-have versus the nice-to-have. It means taking the time to review if spending on a new hire or office is the right move right now. If it’s not a priority, don’t pull the trigger.

2. Avoid frills. It is a myth all startups are cool and sexy. Many successful startups have drab offices, empty refrigerators, minimal travel budgets and, heaven forbid, no Apple products.

3. Be pragmatic about hiring. Hiring too many people or the wrong people is knock out punch. Growth isn’t necessarily about having more people; it’s about having the right people. If this is a definite need, hire someone good. If there’s no need, don’t hire anyone.

4. Raise money when you’re ready and it’s needed. It takes time and energy to attract venture capital. And once a startup has it, the pressure to perform rises exponentially. It means being prepared and ready for the inevitable growing pains.

Running a startup is hard. The decisions are often not straightforward, or black and white. Knowing when to say “no” or “yes” is a challenge. The key is being as smart as possible to make the right decisions at the right time. And being able to say “no”.

Is Wattpad’s $46M Deal A Big Deal for Canadian Startups?

By Mark Evans

First, congratulations to Wattpad for raising $46-million to drive the growth of its writing and reading platform.

It is exciting to see a Canadian company attract capital to accelerate growth and become a world leader. Canada’s technology ecosystem needs bigger, successful players to thrive and, as important, create the next generation of entrepreneurs.

maple leafThe question Canadian startups need to ask is whether Wattpad’s financing is part of a trend or an anomaly? Does it suggest more money is flowing into Canadian startups, or simply a company lucky enough to win the jackpot?

Don’t get me wrong, I’m thrilled for Wattpad and what it has accomplished. At the same time, it is important to have perspective.

It is exciting when companies such as Wattpad, Desire2Learn, HootSuite and Shopify do mega-deals, but they are the tip of the financing iceberg?

As someone who works with early stage startups, I’m concerned there still isn’t enough capital for the growing number of entrepreneurs jumping on the bandwagon. Many Canadian investors want to see traction (customers, revenue) before they get excited. Startups with good ideas or minimal traction have a difficult time attracting capital.

Even when startups do raise money, it often takes too much time and energy. And they are under-financed. It means they don’t have enough gas in the tank.

I’m not suggesting Canadian investors be reckless or overly aggressive, but have a willingness to take more risk. When a Canadian startup comes up with an innovative idea, we need investors ready to step up. As important, Canadian startups need investors when they raise series A and series B round.

The reality: Canada’s startup landscape is getting better. But it is slow and steady progress. 

At the bottom of the food chain, there’s lot of activity – more entrepreneurs, more startups, more incubators and accelerators. Farther up the food chain, however, there aren’t enough angel, seed, series A and series B investors.

As someone who sees the glass as half-full, there are positive signs. The federal and Ontario governments are making large investments in the VC sector. As important, institutional investors are getting curious about startups investing after seeing terrible returns in the 1980s and 1990s.

Eventually (hopefully!), the growing amount of activity at the top will trickle down to the bottom. The good thing is the bottom is alive, well and more than ready for some serious love from investors.

As someone who’s been around the technology scene for a long time, it is exciting to see so many smart entrepreneurs. And we’re not just talking enthusiastic entrepreneurs. We’re  talking about entrepreneurs with good ideas and global ambitions.

To embrace an optimistic approach, let’s look at Wattpad’s $46-million raise as a huge positive. Let’s hope it puts the spotlight on Canada’s startup ecosystem so more investors will start to explore it. Let’s have faith this isn’t an anomaly but a sign change is slowly happening.

For startups looking to jump-start their marketing, I provide strategic and tactical services – core messaging, brand positioning, marketing strategies and content creation.

Five Ways Your Startup Can Deliver Great Customer Service

By Mark Evans

Great customer service is a “killer app”.

It delivers a huge competitive edge and creates happy customers, who stick around for a long time.

Even better, terrific customer service doesn’t have to cost a lot of money. In fact, it’s the little things that often have the biggest impact.

For startups, excellent customer service has the potential to differentiate from rivals. It can propel a solid product into the stratosphere by leveraging strong customer affinity. As a result, a core part of a startup’s DNA has to include great customer service.

Here are some ways for a startup to deliver superstar customer service.

1. Make it easy for a customer to call you. It happens by making your telephone number front and centre, rather than buried on an “About” page. Lowering the barriers for customers to talk is a great way to collect insight and information. Here are two examples of startups that put their telephone numbers in the spotlight.

customer service

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2. Spend non-digital time with them. Whether it’s a conference, dinner, user group, conference or coffee, it’s important to create personal relationships. By establishing a connection, the startup-customer dynamic goes to another level. It’s stronger, better and more valuable for both sides.

3. Deliver excellent support. If a customer has a problem, it’s an opportunity to resolve it and nurture the relationship. In many cases, a startup’s support team has the closest ties with customers. It gives them a valuable role to drive customer loyalty, which is a powerful marketing and sales tool.

4. Make it a snap to get more from the product. The goal: show customers how to get more value and utility from your product. Most customers only scratch the surface of what a product delivers, which make most of them happy. But a startup can ramp up even more happiness by revealing more utility and features. Video is a great way to make this happen.

5. Keep delivering value and insight. While a good product makes for happy customers, it’s not enough. A startup needs to continue to engage and educate customers. It could be blog posts, white papers, videos or case studies. Some is product-focused, but the best value happens through thought leadership.

Great customer service is easy to deliver if it’s an integral part of how a startup does business. It doesn’t need to involve a big investment but it’s a matter of going the extra mile and doing a lot of things the right way.

More: Craig Morantz looks at the four ways that companies can deliver outstanding customer service.

Not Talking to Your Startup Customers? Terrible Mistake!

It’s puzzling but too many startups don’t put enough time or effort into talking to customers.

In fact, many startups don’t understand their customers or their needs.

customersThis is a huge problem because it means startups are guessing rather than knowing. Instead of selling based close customer relationships, they sell using a “build it and maybe they will come” approach.

This is a misguided and, frankly, deadly approach.

It puts a startup at a competitive disadvantage. It makes it difficult to sell what customers want.

To succeed, startups must talk to customers, even before they begin selling a product.

They need to understand a customer’s pains, needs and motivations. They need to know how a customer explores a potential purchase, the most attractive features and how much they will pay. A startup has to identify key influencers and decision makers.

Armed with this intelligence, a startup can effectively position its product with potential customers. Its marketing and sales efforts talk to a customer’s needs rather than a product’s features.

The reality talking to customers is easy and straightforward. It involves research, grunt work and time but there is excellent ROI potential.

Before a product launches, a startup can roughly identify its target audiences. Then, it can approach them with a series of questions about their points of pain, their current tools or products, and ideas about how to offer a better product.

This offers a wealth of information about potential customers, the competitive landscape and the marketplace. It gives startups a jump-start on how to develop, market and sell their product.

For startups selling a product, talking to customers is easy because they’re already in the fold.

Startups can use a variety of ways to interact with customers.

This includes things like a one-question survey asking if a customer would recommend your startup based on a scale of 1 to 10.

The focus is the extremes – customers who wouldn’t recommend the company (1 to 3), and customers who love the company (8 to 10).

Unhappy customers will criticize a startup, but this is valuable information. It gives a startup the opportunity to address concerns to keep a customer in the folder. As well, it helps a startup identify weaknesses. (More: Todd Ramsey looks at why unhappy customers are a great learning source. Laura Klein says talking to customers who leave is an important exercise.)

Another approach is engaging with customers who contact support. While addressing their issues, a startup can use it as a golden opportunity to ask questions about a customer’s happiness.

And then there is talking to customers in the real world – be it at a conference, user group or dinner. It is amazing how much customers will offer up when talking with a startup employee. It could be the CEO, account manager, sales person or secretary. By talking to customers, they will talk back.

The key thing to remember is customers are happy to provide feedback if you ask them. Far too often, startups ignore customers once they become customers. This is a terrible way to do business.

The bottom line is talking to potential and existing customers is a crucial part of growing a business. If you’re not doing it, you’re doing it all wrong.

Next: I will look at the different ways for startups to deliver strong customer service.

For startups looking to jump-start their marketing, I provide strategic and tactical services – core messaging, brand positioning, marketing strategies and content creation.

The Canadian Startup Financing Landscape (2014)

By Mark Evans

Where does entrepreneur get support for their startups? Where do they get growth capital?

After creating an infographic last year, the Canadian startup landscape has evolved, matured and grown, albeit modestly. Here’s an updated edition divided into six categories: angels, incubators, accelerators, seed, series A and series B.

This infographic is certainly not exhaustive but it’s an attempt to identify the leading players in each category. If anyone is missing or I have put a player in the wrong category, let me know by leaving a comment.

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