Brian Erickson:
Thanks for joining the Cardwell Beach Marketing Podcast. My name is Brian Erickson, Chief Strategy Officer and Partner at Cardwell Beach. In this series, we’re interviewing senior marketers across industries to develop perspectives on what marketing will look like in a post-COVID-19 world. Today’s guest is Sam Mallikarjunan who’s worked in a number of high profile marketing roles, including Chief Revenue Officer at Flock, a venture-backed communication and collaboration tech company, and the Head of Growth at HubSpot Labs. Among many other credentials, Sam is an instructor at Harvard teaching advanced digital marketing, software as a service economics, and innovation management. Sam, thanks so much for joining us today.
Sam Mallikarjunan:
Thanks for having me.
Brian Erickson:
No problem. I wanted to talk about weathering the COVID-19 storm from a marketing perspective. I think, first, it’s important to acknowledge that this storm looks very different depending on who you are, where you’re seated, and it’s also changing every week, day, and sometimes, in certain cases, every hour. I guess from your perspective with a software as a service background, what would you say that weathering the storm looks like for a C-level marketer at a venture-funded SAS startup?
Sam Mallikarjunan:
Sure. There’s a phrase that we like to teach a lot that doesn’t translate well if you try and use it, but cashflow is more important than your mother is one of the finance concepts. When things are going really well, it’s easy to take risks and be innovative. When things are going really poorly and you have nothing to lose or no other options, it’s easy to take risks and be innovative. It’s times like now, where things are going poorly but not so bad that we have no other options and everybody is really conservative, that it’s hard to make the distinction between, should we take a risk on something that’s capital or should we hold that? Most people are making the decision to hold back. Marketing, and all of go to market, sales, marketing, all growth functions, are generally something that consumes a company’s cash before it makes a profit.
When there’s a lot of uncertainty in the world, there’s a reason that marketing budgets tend to get hit first. One of those reasons is the fact that marketers still do a poor job of clarifying the business value that we create inside of organizations. If an executive team has uncertainty about what line items are driving the most value for the business, they’re going to cut the ones with the most uncertainty first. The second part is that growing more slowly is just one of the common mechanisms for preserving cashflow. Thinking about the context with which your strategy, budget, team, et cetera, exists with your company’s financial strategy…You have your customers, right? A lot of brands and marketers have customers who themselves are being very highly affected. Thinking about that and [being] conscious of that is that the main focus for marketing strategists right now.
Brian Erickson:
Definitely agree. You mentioned marketing justifying its business value and revenue attribution and whatnot, and that’s been a trend that’s obviously been gaining momentum over many, many years, but, I guess, talk a little bit about how you see that in this current environment becoming more important.
Sam Mallikarjunan:
Marketers, just like the business themselves, we’re generally willing to take bets on things that have uncertainty. Either it’s something new or it’s something that’s hard to measure. A lot of like top of the funnel brand awareness campaigns, et cetera. When we have available capital, when we can take bigger risks. Right now, the things you can measure more directly are the things that we’re doubling down on. Paid acquisition online is expensive, but it’s also significantly easier to measure than, for example, radio advertising and shuffling might be an extreme example of that version. The better we’re able to mess with something, the better we’re able to know if it’s a good or a bad idea. With our need to show that marketing activities are contributing to the cost of customer acquisition and a meaningful ROI in a positive way, that’s going to make marketers more conservative, which is to be expected.
We’re probably not going to be experimenting with new mediums right now. We’re probably not going to be launching brand and buzz campaigns. It’s going to be focused more on what are the things that we know work that we can measure the confidence for ourselves as well as for the business. What are the things that are going to be targeted, as well, and then what are the most possible segments? If you’ve done the buyer persona exercise you know that there are types of customers you have a greater or a better ratio of customer lifetime value to customer acquisition cost. Some customers are really valuable that take a lot of money to acquire, and some customers are cheap to acquire but aren’t really valuable. Marketers right now should be refocusing their budgets on their most ROI positive cohorts, even if that means ignoring some customer acquisition that’s ROI positive. Focusing their budget right now seems better than most ROI positives.
Brian Erickson:
Definitely. Makes sense. At your level, obviously you have plans in place for a lot of different scenarios, but I would imagine that this current event was not one of them. I imagine that you had to come up with a new set of options and turn on the dime here. How did that process work?
Sam Mallikarjunan:
Yeah. I have a lot of strategic continuity plans that we create. A long-term recession, global instability, military conflict in Asia where we have a lot of our offices. All kinds of things we have plans for. The sudden and synchronized collapse with every sector in every country at the same time, not something I had planned for. I’ll be honest.
Brian Erickson:
How irresponsible of you, Sam. How could you not plan for that?
Sam Mallikarjunan:
I’ve told some people that the irony is actually nobody would responsibly plan for that because the only possible mitigation would have been to spend all of 2019 not growing and just working on building our cash reserves so that we could weather the storm at a more even pace than we’re having to do right now. Under 99% of circumstances that is irresponsible use of investor capital. Investors don’t give you their money to do nothing with it. The irony is we did the right thing. I tell younger folks this all the time, “The definition of life is you can do everything right and still fail,” and that’s the situation we’re in. We had to come up with a new plan very quickly and we had to pivot, like a lot of companies did.
Fortunately, SAAS companies, or any company that’s customer centered in economics, where I have a cost of acquiring a customer, customer lifetime value of balance, easy mechanism to preserve cash flow. That’s, as I said earlier, stopped growing. That’s an easy to say except that in a lot of companies the budget that is invested in growth is human capital. Yes, we had a large marketing team because we had intended to grow in 2020. A large sales team, et cetera. We, like a lot of other companies in Boston and around the world, have had layoffs over the last couple of weeks or months here now because that’s the only way to… that is the primary mechanism to preserve cashflow in these companies that have stopped growing. Myself included. I laid myself off in my plan that I had proposed to the CEO.
Brian Erickson:
Which I’m sure was not an easy thing to do for your team, let alone for yourself. I guess, at a high level, what are the strategic options that you see a venture-funded business-to-business SAAS company at the series A, series B stage? What do they have available to them right now in terms of strategic directions? Are layoffs the only option that makes sense, or are there other avenues to come out of this and emerge stronger that might make sense?
Sam Mallikarjunan:
It’s definitely not the only option. The thing to think about is what is the opportunity cost and what is the risk? I see startups, especially in series A, series B… I see startups grow themselves out of business all the time, even in a healthy investment economy, because you can have a positive ratio between your customer lifetime value and your top acquired customer, but if your payback period is so long on a customer that you acquire so many customers that are profitable, but that you run out of cash, you go out of business. That same philosophy is still in effect here. It’s just more extreme, and the availability of external investment capital is more restricted. Right now, most venture capital firms are pulling back from new deals to preserve their available capital for their current portfolios. If you’re part of a VC portfolio that has a strong cash position, this may not be a concern for you. If you were planning on a raise or an additional round in the next, really, 12 to 24 months, from outside your current funding mechanisms, that is a big concern.
Taking within the context of your cash position and what’s your level of confidence that you’re going to be able to support your cashflow requirements, then you have three options. You can either continue to execute against your previous plan, which is a very realistic option for a lot of sectors and a lot of segments. If you weren’t planning to raise money anyways, or you were already profitable or whatever, then it’s not really that big of a deal, as long as your sales pipeline isn’t dried it up. You can be super conservative, and there’s different degrees of this. You can be really conservative and grow more slowly or cash more slowly. Invest less in R&D, invest less into the market, and that’s going to be your strategy. Generally, if you don’t have at least 18 to 24 months of cash runway, you’re probably going to want to be more conservative at least for the next six to 12 months until we see what the world is going to look like, because this is unprecedented.
This isn’t something that we’ve seen before, that we have a benchmark for understanding what it’s going to be like. The third option is if you’re good cash position, either because you had a lot of cash on hand, or you just have a really good cash flow model… so you’re one of those SAAS companies that have three or four months payback, or you’re part of a portfolio that has a lot of liquidity in it, this is a really good time to grow. Marketing costs are going to be less competitive because there’s not going to be as many people in the market.
Incredible talent is on the market right now. I’m looking at my team as well as other scenes, even just here in the Boston area, and some people that would have taken a year’s worth of Tuesday night beers to approve are available. There are some companies… my former employer, for example, has a bunch of cash. Nurturing their ecosystem and investing more in growth during this time period is actually the right way to execute that strategy. Take a look at your cash burn, your cash position, and then relative to availability to get more, and how much you might be able to use, the right answer is that you may be grow as fast as you can during this period, or the right answer may be that you actually need to be more conservative due to your lack of confidence that you’ll be able to fill cash flow gaps over the next 12 months.
Brian Erickson:
Makes sense. Let’s say you take the avenue of growth and you’re going to use this time to grow as quickly as quickly as you can, you have a strong cash position… what does the buying landscape look like right now in terms of price sensitivity, decision timeframe, risk aversion, that sort of thing? What is your anticipation of some of those new factors that are coming play?
Sam Mallikarjunan:
It’s a good that you’re asking this. When I was running HubSpot Labs, I used to half jokingly say that I’m going to tattoo, “We are not the user,” on the inside of everybody’s eyelids, but HR wouldn’t let me do that. Your customers themselves are also probably going through a traumatic experience. They may be facing business challenges or they may be… just the emotional toll. I saw a joke online last week that’s… you’re not just working from home, you’re at home trying to work during a global crisis. There is a distinction. I told us, all of our managers and executives as well, is to understand that our own employees, if they have 0 to 10 stress capacity and under normal circumstances they’re running at like a three, so that’s seven points of stress capacity to work with them. Everybody right now is just at an eight or higher.
We’re all… our stress load is just maxed. You have to be very, very conscious of how much stress you can add to your own team, and the same applies to understanding the people that you’re trying to sell to. Decision making is an emotional process. Human beings tend to fill an absence of information with the worst case scenario. It’s evolutionary imperative because the people who didn’t assume the rustling in the bushes was a lion didn’t survive to pass on the genes. We’re all the descendants of paranoids, and when we’re stressed or when we have an absence of information about the future, we tend to be more risk averse. We tend to assume that things are not going to work out well. People, where you’re trying to sell them an optimistic vision of the future and this is going to grow your business, for example, if it’s a big risk, that balance in their mind is going to be very, very different.
First of all, our own psychology has changed, and second of all, the psychology of the people that we’re working with inside and outside of our company has changed. I’ve stopped starting every call with asking, “How are you?” because they either have to lie to me or we have to spend 10 minutes talking about how it’s terrible for everyone. The psychology has changed. Then, also, the decision timeframe and the decision making process, they have the same rational obligations that we have. If you are a cash intensive buy, that’s not a super safe bet. They might be willing to do that if they themselves are in strong cash position. But if they are, like a lot of companies, where it’s an uncertain cash position or a negative cash position, you probably don’t want to push it right now.
It may seem tempting to, right now, just try and close any business that you can. We’ve moved all of our sales reps to just straight…It removes the variable composition component for the foreseeable future so that they could focus on if there are people it’s a really great fit for and can get them to buy and onboard them, that’s fine, but you also are far more likely to lose deals by pushing too hard right now because of the additional pragmatic economic business stress as well as the psychological stress.
Brian Erickson:
Yep, definitely agree. It’s a time to err on the side of being overly sensitive, because that can definitely long-term set you back if you’re not. It’s just the right thing to do. I don’t think anybody has seen anything like this in their lifetimes. I don’t know if you were around for the 1918 flu pandemic, but I was not, and likely many of the younger generation of marketers and folks on the revenue generation side haven’t been through anything like this before. Have you seen anything even remotely similar to this in your career? Obviously, there have been other downturns in 2008. I believe you were at HubSpot Labs. I guess, talk about some similarities that you’ve seen in other events like this.
Sam Mallikarjunan:
First of all, I know my hair is falling out and I got a big bald spot now but I was not around in 1918. Definitely not in a professional capacity. The world has not seen anything like this. Let’s be clear about that because even in 1918 or any of the preceding recessions or depressions that we’ve had, the world was not so interconnected. The industrial revolution, it was positive, but it didn’t happen everywhere at the same time like revolutions happen now. This is why the pace of disruption has accelerated so quickly, is the things that…the economy, developments in the economy, either positive or negative impacts everywhere spontaneously. It’s why the lifespan of a company on the Fortune 500 used to be like 75 years and now it’s like 10 or 15 years.
That pace of disruption is both a good and bad thing. We’ve never seen a downturn this extreme across all sectors simultaneously where the world was so interconnected. Even in 1918, as horrific as that was, there was always some sectors of growth, and also the economy wasn’t so highly leveraged. Even in 2008, the financial markets crash, the housing markets crashed, but the rental markets increased, because people couldn’t afford to buy and so they could afford rent. There were ways in which you could… it wasn’t universally bad for everybody at the same time. For the most part in what’s going on right now, it’s universally bad for everybody at the same time. There’s no paradigm for this. There’s no model for this.
We’ve all thought about large crashes. I personally thought that a three-to-five-year recession of negative two to negative 5 percent growth was probably the worst case scenario. As bad as that would have been, there still would’ve been ways to drive growth there. That’s the bad side. The positive side, the silver lining on the cloud, is that black swan moments like this, or watershed moments that change everything suddenly, do create opportunities for some companies and some markets, regardless of what’s going on. I still maintain HubSpot would not have been as successful if it wasn’t for the recession in 2008. I had to remind an old colleague the other day that in 2011 when we were at HubSpot, we still had to convince CEOs that ranking on search engines was a worthwhile business goal, or much less that they should be doing blogging, which is something they thought their nephew do on Live Journal, not serious business activity.
Now, obviously almost every major corporation has at least one full-time blogger or somebody where content marketing and SEO is their responsibility. The facts of the great recession created so much pressure that people were willing to try the methodologies, the inbound marketing methodologies that we were talking about at HubSpot at the time. Like I said, the real innovator’s dilemma is it’s easy to be bold and trying things when things are going really well or when they’re going really, really poorly. It’s middle area where it’s hard to sell a transformative message and have a transforming product.
If you have a transforming product, if you have a transformative message, it’s not going to be good for you in the short term because of all the reasons we previously discussed, but, for example, Zoom went from, what? Like 10 million or 30 million daily active users to 300 million daily active users over the last few months. That has to be the most stressed team on the planet.
Brian Erickson:
I think it’s important to remember over the past 10 years there’s just been such hype and obviously well before that as well around the term disruption and you got to disrupt. Go disrupt the market. Disruption is something that happens in the market and sometimes you get to do it to the market and sometimes something else does it to the market. Right? I don’t think that changes the fact that it just reshuffles the deck and new players are going to come out in a stronger position than they did beforehand.
I guess the question I have is, undoubtedly, we’re going to find ourselves in the new normal, as overused as that term has become already. Post-COVID 19, we’re going to be able to leave our houses. There’s going to at some point presumably be a vaccine. The virus on a day-to-day level is not going to be a thing that is all-consuming. There are going to be repercussions beyond that for a long, long time. I guess, how do you anticipate software as a service companies and their marketing strategies specifically will adapt once things return to, let’s just call it business as usual, whatever that may look like, in the new normal?
Sam Mallikarjunan:
First, it’s worth noting, I hate it when terms that have specific meaning become jargon because they lose their meaning. Disruptive innovation in the context in which like Harvard originally intended it, had two main characteristics. One, that it addressed an over-served market, and two, that there was a large number of non-participating consumers. Both of those things are still… All of economics is behavioral. It’s behavioral social science. People understanding that they don’t need as much functionality as the current people have, so they’re over-served. Or people understanding that they could be participating in the market and wanting to participate in the market if something changes, are all decisions that people have to make and those decisions, again, uncertainty and fear or greed and such… these things, they drive us.
Uber, for example, coming out in as we were coming out of the tail end of the great recession, and you had a bunch of people firstly like me, where I wasn’t going to take a black car service and pay them 300 bucks just to take me to the airport or whatever, but I’d pay them 30 bucks, sure, to join this market where I had been previously over-served and that was enough to spin a consumer. There’s going to be all of these things when you talk about disruption, are still driven by psychology. They’re still driven by the behavior of the market. Based on what you’re selling into that your marketing strategy is going to have to change.
First of all, I have actually been pleasantly surprised, ish, by the lack of opportunistic nonsense. I’ve seen marketing that’s been happening. It’s tempting from marketers to news jack everything. Not everything necessarily needs to be news jacked. But we all do need to understand that the underlying decision making psychology and the incentives in our market are going to be different moving forward and we should take another look at our buyer personas and just like a graphics of parts of our markets and say like what has changed in your environment?
The career certainty, for example, if you’re selling to enterprise product companies, the career certainty of your decision makers may be worse now than it was a year ago. There’s the old cat’s race from the 80’s or whatever. They’ll be just fired for buying IBM. Nobody’s promoted either, but right now they may a lot more worried about not getting fired about not getting promoted. The marketing strategies and just the psychology of how we talk to our customers is going to have to change. Then again, the demand generation, the unit economics are going to have to change as well. It was fine to run it at a 24, 30 month payback period. Between your sales and marketing, your customer acquisition costs a year ago when we were… everybody was joking, capital was cheap and some stuff like that. Now you’re going to be expected to be a more responsible steward of your company’s capital and cashflow, and finding lower cost acquisition mechanisms that you may not have explored before.
If you’re not doing content marketing, or if you’re not doing search engine optimization, or if you’re not doing chat bots on your website, which is probably the best funnel optimization I ever did… the second best being letting people schedule direct to the sales reps. Those sorts of things. If you’re not doing all of those things that have an impact deeper down the funnel or are more just capital efficient marketing mechanisms, you should be. Then, the other bit… this is something that market just needed to learn anyways, but if you’re really good at keeping customers, you can spend more money to get customers. Marketers don’t spend nearly enough time thinking about the customer lifetime value side of the equation. How can they impact it both, based on bringing in better customers, with…expectations, and also how can they help the customer success team. The customer success marketing should be a thing in most companies.
If you ignore the old adage that it’s easier to resell something to an old customer than it is to get a new one, that’s true, but getting really good at customer attention, customer monetization will help you with your cashflow in the short term and it will make it so that you can afford a higher cost of customer acquisition than you historically would have thought about. Which if you’re in a cash position, or cash functions, that take more risks and you go faster. Those are my high level, the strategies that are going to have to change our… the way we think about our brand, our value proposition, the motivations and incentives of our buyers and our market. Then also the mechanics of how we’re focusing on the middle of the funnel and the bottom of the funnel to improve the efficiency of our model, not just the top of the funnel. Then beyond customer acquisition, getting really, really good at having a positive impact on customer lifetime value so that we can continue to sustain the marketing activities who are investing.
Brian Erickson:
That makes sense. To boil it down, let’s call it on a more tactical level. Do you expect a typical SAAS marketing mix will change significantly in this post-COVID 19 era? Do you see budgets being allocated differently than they had been playing maybe six months ago?
Sam Mallikarjunan:
I definitely do, but it’s going to be interesting at each company which way it goes, because by definition, the things that are easy to measure and optimize are more competitive and more expensive. I think bottom of the funnel, AdWords targeting is very easy to measure. There’s a short time between the click and purchase and it’s just a very specific acquisition mechanism. Compare that to content marketing, which is over the long term much, much more cash efficient and much more ROI positive, but much harder to draw in straight lines from the dollar in to the dollar out. It’s going to be interesting to see how companies walk that line between investing in things that are expensive but have great clarity and high levels of granular control. I can turn on a hundred thousand dollars today and turn it off tomorrow, versus things that are actually better from an ROI perspective.
It’s on a cost of customer acquisition perspective, but they have… it’s to say specifically that this dollar had this impact, and it also may take longer to have impact on the funnel. I think the smart marketers are going to use this as an opportunity to do the latter, which is take advantage of any decreased competition and paid acquisition channels, affiliate marketing, and that sort of thing, but also take advantage of this opportunity. The entire planet is taking a step back to take a collective deep breath. Take advantage of this opportunity to start making some of those investments in things that are mid-range and long-term, far more ROI positive than things that are short term, have clarity, and are easier to understand.
Brian Erickson:
That’s great. If you could give one succinct piece of advice to SAAS marketers who are planning strategy in the next year, what would you say?
Sam Mallikarjunan:
I would say go hang out with the CFO. This is something that not enough marketers do. Even a lot of marketers I’ve trained and hired and such. I, even, honestly did not realize how critical to the success with HubSpot it was that we have such a strong relationship with our finance team, but because people just see our blog, and our webinars, and HubSpot TV, and the Inbound conference, and all of that stuff is done in conjunction with, not in opposition to, or begrudgingly by, our finance team. Go to the CFO and get a really good understanding of the finance strategy within the company. There’s a big difference between accounting and finance strategy. I understand this is… most marketers went into marketing because they did not want to do this kind of math, and you don’t necessarily have to be that great at the math behind it.
I’m not asking you to go to become, to get a degree in finance to become autonomous, but you need to understand the goals of your company from a cashflow perspective and make smart marketing decisions within that context. First of all, I would argue that’s your job. You should be doing that anyways. Not enough marketers do. Second of all, that is going to be also what gives the rest of the leadership team and investors the confidence that you are going to be a good steward of capital. If you tell them, for example, to not lay people off or if you tell them that you want to invest in this new marketing channel, if they have confidence that you are well ingrained in finance strategy of the business, they are going to test you a lot more just to see the relationship between the CMO and the CFO should now be as much of a priority as the relationship between the head of marketing and the head of sales investment for the last ten years, before the advent of this market. That would be the number one thing that I would say is if you don’t spend a lot of time with your CFO, now is the time.
Brian Erickson:
Absolutely. I definitely agree. You have to have unity across those different areas of the business or you’re not going to go very far. Looking at marketing as an investment rather than expense is absolutely critical and you need somebody who is your counterbalance on the left brain side to some of that right brain creativity. For sure. Sam, thank you so much for taking the time to talk with me today. Really appreciate the great work that you’re doing in the SAAS space. Hope that you stay safe and look forward to speaking with you again soon.
Sam Mallikarjunan:
Absolutely my pleasure. Anybody, if you want to connect with me you can find me on Twitter or LinkedIn. If you type anything even close to my last name, I own most of the first page of Google. Don’t worry about it. Actually, everybody please stay safe as well. Stay healthy, stay focused on your teams and their happiness and their stress and their health as well, and we can all come out of this on the other end of it, with a better relationship with each other.
Brian Erickson:
Absolutely. It’ll be over sooner than we realize. Thanks everyone for listening. This is Brian Erickson with Cardwell Beach. Please make sure to check back for more senior marketers like Sam, sharing their perspective on what marketing will look like in a post-COVID 19 world.
