The theory sounds good. Of course, Sequoia Capital didn't offer any evidence that this is the best strategy. But it is a nice presentation with lots of graphs indicating pending doom.
All of you who run Multichannel Forensics forecasts know the real impact of cuts in marketing, don't you?
- Brands in "Retention Mode" face dire long-term growth and profit consequences by hacking marketing expense today. However, the hatchet-like approach will appear really positive in the short-term, because sales won't decrease much this year.
- Brands in "Hybrid Mode" have a lot of options for cutting marketing expense.
- Brands in "Acquisition Mode" can take a hatchet to marketing expense, knowing that because they do not retain customers at a sufficient rate, the business will bounce back quickly when the economy returns. However, the hatchet-like approach will have dire consequences on top-line sales this year and next year.
I'm confident you can build these tools yourself, if you need to. If not, I'll be happy to help.
Click on the image below to enlarge it.
There's a crucial difference that you don't mentioned between the target of your advice and the target of Sequoia's presentation -- few if any of Sequoia's early stage entities are retailers. Their assessment of the likelihood of the market being terrible for years, and that non-profitable companies need to get to profitability, are spot on and apply to all startups.
ReplyDeleteI think your analysis for what happens to retailers who cut costs based on their "mode" is basically accurate, but I detect a presumptuous air in your article that's pretty off-putting. You can't just appropriate their leaked internal presentation and try to trash-talk it's applicability to an audience that it wasn't intended for. You would have been better served by asking your readers, "is the sequoia advice applicable to my company? well, here's where you need to look at your business" -- instead of making insinuations that Sequoia has no idea what they're talking about.
Ok, Vince, let's give you credit for pointing out some key issues. Good for you, I think on average, you're right!
ReplyDeleteNow, you didn't discuss a key element of the argument. Sequoia tells folks that they must slash and burn expenses immediately, rather than cutting in stages --- yet they offer no proof whatsoever that their strategy is right. And you didn't offer anything to back up their hypothesis.
Finally, Sequoia didn't address key elements of startup businesses. I consult with startup businesses --- some have a customer base that is highly repeat in nature, be it a social network or a subscription-based service or e-commerce. Some have few if any repeat buyers. My arguments hold for each of those businesses --- slash the repeat business, and you'll pay in the future ... slash the acquisition-based business, and you pay today, with benefits in the future.
You didn't argue this fact, either.
So the two key issues that I discussed you basically passed over.
I can focus on being less presumptuous, agreed.