Early-stage companies often miss opportunities to develop effective brand strategy. If you doubt the need for a great brand–thinking perhaps that technology alone will be enough to secure a strong market position–take a look at Baris’s List of Web 2.0 Companies. With that much competition, these companies need to do all they can to differentiate themselves from others. There are many viable approaches–starting with forming a solid team, building a killer technology, and developing a sustainable business model–but without the right branding, how confident can you be that current and prospective customers will properly understand your company?

Building a strong brand takes time and money. The payoff is that customers who correctly understand and appreciate a company’s brand proposition tend to be more loyal, less price sensitive, and more willing to serve as evangelists. Still, many companies repeat a set of common mistakes. In particular, here’s what I’ve seen:

• Product messaging doesn’t match customer expectations. There are two main issues here: quality and readiness. The key in both cases is to deliver the level of service that the buyer expects. It isn’t necessary to offer the most functions or best performance–in fact, going for the lower-end of a given market may be a good move–but almost everyone has seen companies get into trouble when their product claims diverge from reality. Big companies have a few key disadvantages here. Think about Microsoft: almost any product they release is immediately scrutinized with significant press coverage. If that initial launch isn’t fully what they have proclaimed it to be, many potential customers will hear about it. Even if meaningful improvements are made later, the first impression can be hard to shake. Interestingly, Google has tried to retain a startup-like feel by leaving certain products in a nearly permanent beta stage, perhaps trying to condition customers to expect bugs and incomplete features; I don’t think it works, though, as the term has nearly lost its meaning and, in any case, even beta launches from Google receive tremendous coverage. Startups, simply because they have fewer customers to lose, can more easily launch incomplete products, get feedback, encourage community involvement, and then make rapid incremental fixes. Even if an initial launch is badly flawed, only a small number of customers will know–and such early-adopter customers will likely be forgiving. I think a generally sound approach, where possible, is to clearly and publicly state product release intentions and timetables. The folks at Automattic do a great job of this with Wordpress. For example, they (like many other open source companies) expose their product roadmap, including outstanding issues. Anyone can easily see exactly where the product is and make their plans accordingly.
• Unclear product or market positioning. Who is the target market, and how would you like customers to view your company? Too many companies try to be all things to all people; doing so is generally a recipe for failure. Unclear positioning is an especially important issue in crowded market categories, like online calendaring. For example, take a look at 30Boxes, Airset, CalendarHub, Kiko, and Google Calendar. Experts may appreciate the relatively small differences between the various alternatives, but will most mainstream customers? Given the number of alternatives, my guess is that most new users will look either for a particular feature (ie integration with a particular application) or a trusted brand. Without either, customer acquisition may be difficult.
• Over-reliance on one marketing channel. Sometimes companies depend too much on a single method of customer acquisition or interaction. In practice, it’s usually best to employ a mix of tools because the underlying drivers that determine each method’s effectiveness will change over time. For example, buying Google keywords may initially be a good customer acquisition tactic. If relevant keyword pricing increases, then it may make sense to increase efforts elsewhere, say in email.
• Unclear or confusing branding story. Startups have a huge advantage over large companies here because a startup’s story is generally relatively more simple. Compare Feedburner vs. AT&T. Feedburner’s mission is simple: they help bloggers, podcasters and commercial publishers get more value from the content they create. That in mind, their company name, goals, products, and messaging are all consistent and clear. AT&T, on the other hand, has a much bigger challenge, as they offer hundreds of unrelated products, all sold across the globe. Their slogan: “Your World. Delivered.” Can someone tell me what that means?
• Short-term investment mindset. Sometimes it may be appropriate to invest heavily in branding, even if doing so means sacrificing immediate profits. Vonage is an interesting case in point. As I’ve written about earlier, for the nine months ending 9/30/05, the company spent about $176 million on sales and marketing despite a net loss of $189 million. Clearly, if the team were concerned solely about short-term profits, they would slash marketing expense; instead, they’ve continued to spend in order to attract new customers in the hopes of a better long-term story (we’ll see how it works out; I think they need to fix their churn problem, which will likely demand solutions unrelated to marketing spend). Clearly, most startups can’t (and shouldn’t) raise capital like Vonage has. On a smaller scale, though, the point is the same: sometimes it makes sense to invest aggressively to build or expand a company’s foundation.
• Internal disagreements or mixed messages. It isn’t easy to reach a point where all employees share a common understanding of a company’s overall message and are willing to deliver it. It’s worth getting there, though, as hearing conflicting messages from people at the same company is incredibly annoying. Again, startups have a significant advantage. Compare 37 Signals vs the airline industry. 37 Signals delivers a relatively small number of products, and the message for each is clear: “join us and say goodbye to bloated software.” Indeed, their products generally have fewer features than competitive offerings, the team writes a blog about simplicity, and the team frequently speaks about doing less rather than more in software design. The airlines, on the other hand, are quite a different story. Despite a veneer of marketing friendliness (”fly the friendly skies of United”, “we’re American Airlines, something special in the air,” etc), the reality is that airline employees are generally terrible at actually delivering that message. In part, this is due to problems beyond their control: ticket pricing is opaque, frequent flier miles are difficult to redeem, etc (my sense is that many airlines rely more on route exclusivity than on product or brand advantage for their competitive advantage, but this is another story). But when airline employees send a signal other than the marketed message, there’s a problem. As a result, when a new competitor arrives (eg JetBlue), customers tend to be quick to leave–and there’s little incentive (beyond increasingly worthless frequent flier miles) to return.
• Other general inconsistencies. Clearly, it’s appropriate for a company to respond to changes in the marketplace by altering strategy. However, when a company makes a complete about-face, it takes more than words to build credibility. For example, consider Microsoft’s changing approach to open source. In 1998, Microsoft produced a series of so-called Halloween Documents identifying open source in general, and Linux in particular, as major threats to Microsoft’s market position. In 2001, Steve Ballmer famously described Linux as a “cancer” (he was making a questionable assertion about Linux’s GNU GPL license). So far, so good–companies are entitled to pick their enemies. However, in 2002, the company’s VP of the Windows Server Group, told reporters that “[Windows] can be open source. We love the concept of shared source” (emphasis mine). Yeah, right. Few people bought the idea that Microsoft started truly believing in open-source; rather, the statement was a transparent move to address customer concerns and respond to steady improvements in open source software packages. By starting at such an extreme position in the first place, and then doing a complete about-face without first demonstrating a true commitment to open source by its actions, Microsoft hasn’t succeeded in aligning itself with the open-source movement–in fact, some would say that they continue to have little credibility in that realm.

Posted by Dan Grossman on Thursday, April 20th, 2006 at 3:26 pm.