Marketing Portfolio Management in New Ventures

The best practices in marketing hi-tech new-ventures more closely resemble that of a targeted portfolio management than that of a general portfolio management. Within this logical construct for marketing and sales, expenses are allocated within a selected portfolio of activities that are dependent upon the economics of the market being served.

Under modern financial portfolio theory espoused by the University of Chicago, the average investor should hold the market. One way to defend this theorem is that the market is invested in by the combined investment of all market participants. On average, no investor can earn above average returns on the market without taking above average risk within their investment portfolio. Once they take above average risks, they are no longer average. Thus, the average investor is holding the market. From this theorem, we are able to take simple investment strategies of purchasing a rough approximation of the market and holding the index.

Unfortunately, this modern financial portfolio theorem does not have a direct analogy to good hi-tech new-venture sales and marketing. The average marketer does not participate in all forms of marketing. No start-up is able to afford this, and furthermore it isn’t financially a sound marketing investment strategy. Rather, successful start-ups select a limited portfolio of tools to conduct their marketing efforts. I call this targeted portfolio management.

For instance, in marketing communications, new ventures attacking markets with low volumes of high value items tend to select communication vehicles of selected trade shows, heavy direct sales teams, and highly selected advertising/direct mail campaigns augmented by brochures, case studies, and informational web sites. On the other hand, new ventures attacking markets with high volumes of low value items tend to select communication vehicles of broad advertising, direct mail, general trade shows, and telesales or a junior sales team augmented by brochures, discounting, and coupons.

Likewise, in gathering product requirements, ventures attacking low volume/high value markets tend to rely more heavily on user groups, executive meetings, and proposal requirements, while ventures attacking high volume/low value markets tend to rely more heavily upon market research firms and customer polling.

While the concept of creating a targeted portfolio of activities appears to hold true, it would be improper to state that firms in low volume/high value markets shouldn’t use market research, or that firms in high volume/low value markets have no value for a powerful sales person to arrange partnering contracts. Rather, what does appear to be the case is
that firms select a portfolio of actions, experiment within these marketing tools, and conduct limited experiments with other tools. For instance, in selecting trade shows, a new venture might initially select three or four conferences at which to exhibit, measure the outcome, then adjust the portfolio of trade shows to experiment with a different conference. Or, on a higher level, a marketer might initially select to conduct business primarily through a direct sales force, direct mail, and seminars, then later experiment with the marketing mix to include targeted advertising.

Regardless of which marketing tools are selected, the returns from the vehicles deployed must be measured and the overall efficacy of the portfolio of actions should be determined by a mixture of soft criteria and hard numbers. Soft criteria should be the overall impression of the firm within its market, such as brand and values. Hard criteria should include revenue generation, profitability, market share, market awareness, and purchase intent.

Lastly, no portfolio of revenue generating activities can be created without a sales & marketing budget. The final rule is that if firms don’t invest in marketing and sales, revenue growth is at the best organic and at the worst a failure.

The May Report, TECH BUSINESS BRIEFS, April 23, 2002