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Should Startups Worry About a Brand?
LABRADOR by: Larry Kubal, Labrador Ventures – November, 2005
VENTURES
For VC’s investing in consumer facing Internet startups, there’s a whole
WWW.LABRADOR.COM
new ballgame in branding.
Guy Kawasaki doesn’t mince words – what you see Don’t Say That Word
is what you get. And when he talks about branding For VCs currently paying far more attention to con-
he pretty much tells it like it is: “When all of that sumer facing Internet businesses than they have in
Super Bowl money was flushed down the toilet, it quite some time, ‘word of mouth’ has taken on a
was because people were building brands without whole new meaning. Traditional ‘marketeers’ have
products or business models.” almost no role in this universe of brand ‘evangeliz-
That was back in 2000 when, for a 30-second com- ing,’ let alone any say in how Internet companies
mercial appearing during Super Bowl XXXIV, might create the communities of users so essential
Pets.com (remember them?) spent more than $2 to building Internet businesses. Marketing budgets
million of their investors’ money. But for what? are now far leaner, while knowledge of, and famil-
Nine months later, the glorified online dog food iarity with, a company’s customer base is far more
company was out of business. And it wasn’t alone. intimate.
Larry Kubal
Seventeen other Internet companies placed high- “In our offices, the word ‘branding’ is banished,
priced ads during the Super Bowl that day. Two particularly at the stage we’re at,” says Eric Ries,
years later, 13 of them had disappeared. So much CTO and co-founder of Palo Alto, CA-based IMVU,
for ‘branding for branding’s sake,’ say marketing an early stage instant messaging company that uses
experts. cartoon avatars to create communities of loyal IM
As seen in the...
Now, times are different. Very different. Today’s VC users. “We’re in collaboration with our audience for
buzz is all about “capital efficiency.” How can mar- our success, rather than having an audience for our
keting capital be efficiently deployed for an supposed genius.”
internet startup, with payback in terms of decreas- As a result, says Ries, marketing comes down to a
ing the cost of customer acquisition and increasing budget of just $10 per day and is the direct result of
the lifetime value of the customer. Alex evangelizing to the evangelists. “Our most loyal us-
Wipperfurth, author of the book “Brand Hijack” and ers will tell us what idiots we are when we release a
a partner with San Francisco, CA-based marketing new feature or a new product, and for us that’s the
consulting firm Plan-B, maintains the gold is in the best marketing of all. That means we can then re-
latter – boosting the lifetime value of any customer. spond to them, and they can share our responses
Too much attention is still focused on customer tri- with their own audiences.”
als and not nearly enough on having the customer
incorporate a product or service into his or her life, Branding has thus become an exercise not of
yielding true long-term customer trust and loyalty. budgets and cost-benefit analyses, but of stickiness,
habits, and conviction. As Ries notes, “For us,
The problem, says Wipperfurth and others, is that ‘branding’ comes down to three basic things. First, is
money alone can no longer buy ‘branding.’ That’s what we have and what we do viral ? Second, is it
been the mistake made by companies, large and sticky or habit forming, will users automatically
small, for years. Interestingly, consumer facing want to come back and use it more? And third, is it
LABRADOR VENTURES Internet startups are now among the first to learn something that can be monetized”? It’s clear that
this lesson, and the first to respond. “We live in a Ries has been talking to VCs as this is an articulate
101 UNIVERSITY AVENUE world with a consumer base that can detect summary of exactly the questions we ask and the
bullshit a mile away, and is suspicious of any kind characteristics we look for in consumer facing
FOURTH FLOOR
of marketing message,” argues Wipperfurth. startups.
PALO ALTO, CA 94301 “That’s why word of mouth, peer-to-peer marketing
is so powerful, because it’s about passion. And Wipperfurth sees it as even more basic than that. “If
TEL : 650-366-6000 passion is where real substantive meaning comes I were a VC today, I would ask does this thing have
about.” the potential to make a difference in people’s lives?
FAX : 650-366-6430
cont.
It always amazes me that VCs don’t even alongside Highway 101 near San Fran- we were talking about routers or servers,
include this level of understanding of cisco, that’s hardly their marketing strat- any new product or company should have a
branding or marketing in their own due egy. “The direction from our Board was niche set of customers who can become
diligence.” Perhaps he is right, particularly don’t spend a lot of money on branding,” their evangelists.”
now that marketing must involve a decision says Michael Raneri, President and COO of
Like MeeVee, Pandora has spent at most a
to let go of control over one’s brand MeeVee. The key for Raneri then was to
few thousand dollars on its marketing,
entirely, rather than try and manage it or ‘influence the influencers.’ “You target
though each company admits it’s not about
market it to death. those few thousand of your most loyal con-
how not to spend a dime on marketing.
sumers and let them hijack your brand,”
Brand must now be co-created with the Rather it’s how to grow by spending a rea-
says Raneri. In the case of MeeVee, that
market, where the marketplace acts as par- sonable amount relative to incremental
meant first getting into the blogosphere,
ticipant rather than audience. It’s about revenue growth. For Chris Devoor, CEO of
accessing the editors of sites such as
creating buzz, not hype, about grassroots Seattle, WA-based Judy’s Book, an online
TVgasm and Superficial. The hope was that
marketing and peer-to-peer communicat- community of user generated local content,
the 200,000 active readers of TVgasm or
ing, not mass media messaging and staged a marketing budget wasn’t even an option
the 1 million active users of Superficial
events, says Wipperfurth. And it’s about – or perhaps even necessary – for what he
would then send their recommendation of
creating a long-term learning model versus deems open source branding.
what’s ‘hot’ to their friends, with those
merely short-term product awareness.
‘influencers’ then becoming the opinion- “We have no agency, no outside design ca-
How (not) to Brand holders for the early adopter segment. pability, no promotions person, so we’ve
essentially spent no money on advertising,
So how does one do this? Viral marketing, According to Joe Kennedy, CEO of Pandora,
branding or marketing. But then again, we
intuitive messaging, word of mouth brand- an Oakland, California-based music tech-
wouldn’t ever try and buy our growth, that
ing aren’t altogether entirely new con- nology company offering user-generated
just wouldn’t work for us,” says DeVoor.
cepts, though the Internet certainly takes customized radio stations, two great things
Even though he might think of his company
their subtleties to new heights. happened over the last five years to change
as an online content site, to his users,
branding. First was the development of
In the offline world, when Red Bull was Judy’s Book is a blog. “They come there to
search engine marketing, while the second
first introduced as a drink of choice, com- read and write and express themselves, so
was the development of blogging. “Six
pany representatives tossed empty Red we feel that trying to shove a brand down
years ago you could go out and buy your
Bull cans into the bathrooms of some of the people’s throats is not only non-productive,
typical TV and radio campaign, but only if
trendiest bars and restaurants in New York. it’s counterproductive.”
you had $20 million,” says Kennedy.
Those cans created buzz, that buzz spread
“Search engine marketing changes that. It For VC’s, this doesn’t mean consumer fac-
rapidly, and a new mixer was born. W Ho-
lets you make a little, sell a little, make a ing Internet startups should be allowed
tels had a similar approach. Rather than
little more, sell a little more.” zero dollars for branding. As Wipperfurth
load up on expensive magazine ads or tele-
notes, “Just because you’re going under-
vision spots, it simply placed a host of mod- If search engines are the new branding
ground doesn’t mean it’s not expensive.”
els in all of its hotel bars and gave them vehicles, blogging is the new PR. In
Rather, it means VCs of today need not be
unlimited expense for buying drinks. The Pandora’s case, the company’s CTO is a
intimidated by the mistakes of the past
models created buzz, the buzz spread, and long-time blogger so he knew not only how
when online consumer sites automatically
W Hotels created the ‘brand’ it was looking to access that world, but also how to talk to
meant spending lots of money on branding
for – rather cheaply in fact. it, respond to it, and perhaps most impor-
– perhaps needlessly. With a more viral
tantly, let it work at its own pace. “Music
Smart consumer facing Internet businesses approach to generating core groups of loyal
is a category people get emotional and
aren’t behaving that differently. Though users, startups may actually now have the
enthusiastic about, but even the blogging
Burlingame, California-based video search opportunities to spend marketing dollars in
community had to recognize us as one of
startup, MeeVee, already has a billboard the most efficient ways possible.
their own. Though I’d also say that even if
This is one in a series of monthly
columns on seed and early stage
investing that Labrador Ventures Larry Kubal is a founding partner of Labrador Ventures. He represents the firm at port-
was selected to contribute to the folio companies Aperto Networks, Proficient Systems, Savage Beast, Soligence and
Venture Capital Journal. Teraburst Networks. He may be reached at lkubal@labrador.com
