A quick pre-amble: I’m not a marketer myself, but I’ve been studying marketing & business strategy for a couple of years now to help me in my day job. This stuff is hard (for me), so I sometimes write my own reflections to help me internalise what I read. This is one of those “explain stuff to myself” posts. Thanks for reading!
I’ve spent the past couple of weeks reading Cedric Chin’s excellent series on the expertise of capital in business. He makes the case that being able to raise and deploy money skilfully is one of the most underrated traits of business success.
This got me thinking about how marketers could benefit from being more skilled in capital, even if they don’t want to become CFOs themselves. After all, CMOs often act as the “CFOs” of customer acquisition. Every day, they make decisions on when to pitch for more budget, how much money each channel gets, or when to pump in (or pull) budgets, with the goal of driving better ROI.
How should marketers think about becoming better at capital expertise? In his post The Skill of Capital, Cedric lays out a helpful framework to help us identify the different buckets of this expertise:
- Knowing How To Get Capital
- Knowing How To Deploy Capital
- Understanding How Capital Shapes Business Strategy
In this post, I’ll talk you through about some examples of how marketers could benefit from becoming more skilled in these areas.
Knowing How To Get Capital
The ability to raise money often means the difference between life and death for a business. Similarly, a marketer’s ability to acquire budgets will often determine what they can or cannot achieve. For example, I’ve worked with brands who’ve asked me to run full-funnel, multi-market campaigns… on a tiny budget. Their intentions were good, but they were severely limited by their budgets.
This is why its critical for CMOs to build great relationships with the rest of the C-suite, but particularly with the CFO who holds the purse strings. CFOs will only give you the budgets you need when she understands and trusts that the Marketing team will drive a good ROI for that money.
But raising money isn’t just limited to the annual budget planning exercise. Just like how skilled business operators know how to raise money in creative ways (Cedric’s Dell Computers case study is a great example), savvy marketers know how to tap into alternate sources of capital.
For example, I used to work in the Singapore marketing team for a major airline. Back then, our budgets were tiny – there were barely enough funds to run 1-2 campaigns a year. And yet, we were given crazy high growth targets to achieve, off the back of a constrained budget. What could we do?
My manager found a smart way to work around our budget constraints: by cultivating partnerships with financial institutions and tourism boards. Why? Because banks wanted to drive more people to spend on their credit cards, and tourism boards wanted our help to promote their destinations.
These partners practically threw money at us to run dozens of campaigns every year, without us needing to spend a cent of our own cash. I’m sure there are more creative ways which marketers have deployed to raise capital, but I was very appreciative of all the additional opportunities (and funds!) I had to run my campaigns.
Knowing How To Deploy Capital
In the same post, Cedric talks about how many business operators don’t know how to allocate capital strategically (emphasis mine):
Many business operators reflexively reinvest free cash flow back into the business, even when the reinvested cash generates decreasing returns.
…But when the rate of growth decreases, as it inevitably does, they continue doing more of the same, not understanding that they have to do something different.
They do not realise that there are other options available to them. Or perhaps they do, but they do not realise that they have to think like an investor — that the stream of cash flow should be reinvested into the best of a palette of five options.
In the same way, many marketers default to the same old tactics and channels which have worked in the past. However, no channel can continue growing indefinitely at the same levels of performance: Competitors come in, consumer behaviour changes, or they’ve simply exhausted their existing pool of customers. And yet, so many marketers continue to pour money into the same old channels, despite seeing their performance decline.
If you had an extra $100 in budget to spend tomorrow, which channel should you invest it in?
The answer to that question isn’t straightforward. It requires an understanding of attribution, incrementality, and knowing what your marginal returns are (More on this in another post). Many marketers don’t take the effort to truly understand it, instead choosing to outsource budget allocation decisions to their agency. Without the client pushing for more sophisticated measurement, agencies don’t have a big incentive to drive this, leading to sub-optimal budget allocations and wasted money.
However, this is good news for savvy marketers who know how to think like investors: Those who look at their channels like a portfolio of investments, measure performance dutifully and make careful investments into the highest-impact channels & tactics.
Understanding How Capital Shapes Strategy
Lastly, Cedric makes an interesting point about how capital often shapes business strategy in hidden ways. This applies to Marketing as well.
Remember how most of my airline campaigns were funded by external partners? Our desire to keep our partners happy dictated the way we ran most of our campaigns. For example, we ran a considerable number of half-page-full-colour newspaper ads, because our partners wanted to see the ads that they were funding. Digital ads drove a much better reach but were less visible (they were “below the line” in media parlance). Our funding came from partners, partners wanted to see the ads, and so we ran newspaper ads.
Another example: Its often difficult for marketers to justify budgets to run brand campaigns, since they don’t generate an immediate ROI. To work around this, marketers may sometimes adopt a “brand subsidy” model, where a small percentage of short-term sales goes towards funding longer-term brand campaigns. This gives the brand team an incentive to design campaigns and creatives towards driving sales over the long run. However, this also means that they’re less likely to create one of those artsy ads with zero call-to-action, like those you see from luxury brands.
I’m not saying that newspaper or artsy ads are worse than digital, performance-driven ads. These are simply different approaches. However, I wanted to point out that in both of these examples, the source of funding shapes your marketing strategy. At a minimum, savvy marketers needs to be aware of these dynamics so that they’re not caught off guard. An even savvier marketer might want to design their capital strategies to complement their marketing strategies. For example, a marketer who wants to experiment with more longer-term channels might push for a brand subsidy model of funding, to give her more freedom to experiment.
In Summary
When I first started studying marketing, I paid a lot of attention to the technical aspects of it: The right formats to use, the different audiences you can target, and the best creative strategies to drive engagement.
These are all important, of course, but I’m starting to see how a skilful use of capital is often one of the highest-leverage skillsets that marketers can cultivate. I’d love to hear from you if you have any examples from your own experience.
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