CEOs & Investors: Don't Miss Out on Getting the Valuations You Want!
Advice from 90 Tech CMOs about how to CEOs, founders, and investors can use marketing more strategically to for a better exit The world of B2B enterprise software has a problem – a marketing problem. In its obsessive focus on quarter-to-quarter lead generation, many companies lose the forest through the trees when it comes to using marketing strategically to get the exits they deserve. In the world of B2B software, transactions are where most companies live; getting sold, carved out, taken private, split apart, turned around, given a cloud pivot or merged with another company. CEOs and founders are thinking about the exit and the quants call the plays. In these companies the focus is short-term, three-year horizons, however, for marketing the focus is on creating a scalable, sustainable engine, brand and customer experience. Hitting the pipeline targets every quarter are just table stakes. Everyone wants to grow, but the desired endgame is completely different.
While executives, investors, and boards are focused on growth as the path to a transaction, most marketing leaders and teams are focused on growth on a path to building a sustainable brand.
This creates a disconnect where marketing is squeezed to align and mostly measured on how many three-point shots they make in any one quarter, not how they are contributing to winning the championship – which is in this case, is getting the valuation everyone wants at the exit. In short, the marketing strategy isn’t aligned to ultimate desired business outcome, and it’s often forced to be too tactical to fit the capacity-based orientation of the accountants and the sales teams.
What do CMOs have to say about it?
Earlier this year, I ran a survey gathering insights from CMOs in the high-tech marketing space who had transaction experience. I wanted to also understand if this thesis could be supported and if CMO tenure was related to this perpetual disconnect or was it just how it is in the world of transactions.
TOP 5 INSIGHTS
1) Budget was not the main factor limiting success
The BRD segment cited systems and process across the business to track marketing impact (58%), sales accountability and/or execution on the marketing leads (56%) and marketing having a seat at the table (54%) as being more of a gap over budget (50%).
The EST segment ranked two items tied as the most important to their success (100% rated 4-5 on the scale of 1-5 for importance); 1) alignment across the business around company positioning, and market segmentation, and 2) authority to make decisions or take actions on areas they are accountable for. The third biggest factor was alignment with sales on the entire GTM plan across sales and marketing.
However, the biggest gaps in satisfaction in the EST segment were executive/stakeholder expectations aligned with what marketing can deliver (only 41% were satisfied with the support they were getting from the executive leader). Sales accountability and/or execution on the marketing leads (only 35% were satisfied). Dissatisfaction with budget levels was only 12%!
2) Marketing not seen as a critical value driver in the context of a transaction
EST CMOs were involved early in the transaction process (40%) versus their peers (25%) but what’s interesting is the BRD was more often asked to create a set of marketing initiatives that would deliver a better transaction outcome (64%) versus their more established peers who were asked to stay focused on delivering to the fiscal year business objectives, current marketing plan and budget (67%).
When asked what the perspective was from bankers, investors, and other stakeholders in the transaction process, both segments state that marketing was seen mostly as a support function or variable expense in the transaction discussions (54%). Respondents selected marketing seen as a critical value driver to the business in the context of the transaction less (34%). Marketing seen as being under-resourced or requiring more investment was low (8%).
3) Transaction teams and CEOs rate low in understanding how marketing works
Respondents were asked to rate various parties in the transaction process on the level of understanding about marketing as a function, how it works, and requirements for success.
In the EST segment, their own sales leaders ranked highest by twice the other categories and the leaders for the strategic buyer getting the second highest rankings. The CEO was ranked third and the bankers/deal team and the PE/VC teams ranking last. For the BRD segment the sales leader also got the highest ranking along with the strategic buyer leaders, with the bankers/deal team, PE/VC leads and product leaders coming next and the CEO/founder ranking the lowest in understanding overall.
4) Marketing disconnects are prolific in the transaction process
The biggest topics discussed in the transaction process were how to cut the budget, lead attribution, and validity of lead generation modeling while also trying to understand the value of a brand.
The top five topics cited as being the most difficult for executives or investors to understand across both groups in the transaction process are:
Linking brand awareness to quarterly results
The time horizon for marketing to have an impact
Understanding the balance between sales capacity versus early pipeline build
Lowering EBITA while also expecting accelerated growth
Stakeholder understanding the difference between company versus product positioning
When asked what the biggest misperception was by CEOs and investors the biggest area to stand out was the value marketing can deliver in what timeframe. These quotes sum up the respondents’ sentiments best.
“Founders, CEOs and investors often expect faster results from marketing investments, but investments need to be aligned to the long game. They have a perspective of more traditional ‘feed the funnel’ lead volume style marketing, not the role that marketing can play today across the entire revenue process.”
“Since most founders and CEOs I’ve worked with came from sales, they believe marketing value is primarily demand gen and the value is directly and exclusive to opportunity conversion. Lack of understanding related to the establishment of the broader content and conversation above the sales funnel.”
“They think you can just sprinkle a little marketing on everything to drive growth and revenue and that it’s just a cost center versus a value driver. It’s on us to educate and come armed with the numbers, we own the sales and marketing alignment and shared goals, sales won’t come knocking, you have to drive this discipline.”
“Investing in marketing today drives results today. There are things that need to be done to ensure alignment and turning on marketing won’t produce results on day three.”
“That marketing is just pretty pictures and clever noise.”
“That marketing is easy.”
Respondents were also asked to share their biggest challenge in the transaction process.
“Trying to grow awareness and pipeline while significantly cutting program spend and headcount.”
“The challenge is to show the benefit of building the brand.”
“Providing PE firms instant data when the company is new to marketing, so everything must be built first. Also, they don’t understand how important messaging and positioning is to the business.”
“Finance folks can often drive the process and don’t understand marketing well enough to know where and when to insert it.”
“Getting people to listen.”
“Unrealistic expectations.”
Respondents were asked what one question they get repeatedly from their stakeholders that never goes away. The examples below were selected to represent the largest represented sentiments.
“What one program will give me the most pipeline?”
“If you hire one more marketing person, what will the impact be.”
“Why does everything cost so much?”
“How much longer until our brand is famous for recognition and recall.”
5) Top advice from CMOs entering a transaction didn’t include generating new pipeline
We asked respondents to select the top 5 pieces of advice for companies going through a transaction in the next 12-18 months. Generating new pipeline opportunities didn’t make the top list.
Create brand buzz to get more top of mind awareness to target buyers, decision makers and transaction audiences combined
Focus on clear competitive positioning to influencer, customer, and prospect audiences
Focus on customer engagement/loyalty programs to help lower churn
Leverage marketing to deliver new revenue streams in non-product areas
Demonstrate sales and marketing alignment on achieving KPIs
About CMO tenure
Respondents were asked to select the reasons CMOs tenure is so short. The top responses are listed in order.
Misaligned expectations about what marketing can deliver within the budget envelope (highest by 13 points)
Leave to pursue better opportunity due to compensation/upside
Not aligned with CEO/Founder
Transactional nature of the industry causes change (M/A, PE buyouts, etc.)
Lack of authority to make decisions/changes
When asked what next career step most interesting, respondents elected board roles and paid advisory as most interesting. They rated becoming a CEO as the most difficult path to pursue relative to their other executive peers. The sample was 52% female and 48% male.
PUTTING THE FINDINGS IN CONTEXT.
There’s misalignment on the desired endgame and expectations at the top.
Marketing requirements are distinctly different for transformation or growth-stage software companies than for established brands for one reason, transactions. Yes, big company marketing for the likes of Cisco or SAP is different than the type of marketing used in smaller companies in both scale and maturity, but it’s more than that. The big companies already finished their hyper-growth and are now sustained brands whose focus is primarily on intergalactic world domination.
For every other B2B software company growth is the goal yes, but their destiny is different. Yes, there are special snowflakes that became blockbuster brands in the proverbial hot minute, but then there is everyone else who lives in the Valley of Transactions where valuation is king.
Meanwhile, marketing aspires to take something with potential and grow it into a global brand. Marketing thought leaders, authors, even our CEOs use the likes of Google, Facebook, Apple, and so on, as the bar and achieving this kind of brand value takes a longer time horizon. With this as the context, we are working towards building a demand generation and growth engine to scale and a brand that is sustainable into and beyond billions of dollars in revenue. We strive to build a foundation that will be stable and additive as the company grows.
This is where misalignments between the executives and marketing occurs and creates competing objectives, divergent assumptions around where investment needs to go, and confused expectations when it comes to the work being done and the decisions and investments being made. It is my belief that this disconnect is the center of many CEOs and founders are so profoundly confused by their marketing teams.
Have you unknowingly benched one of your best players?
Right now, you may be sitting on an asset that you aren’t using to your full advantage.
Intuitively, do you think it could do more to help drive your multiple? Marketing might be your biggest opportunity and your strategic weapon if you are open to a new perspective, you can get more out of marketing to drive value in the highly transactional environment we are living in – if you lean into it with a learning mindset and unleash the power of strategic marketing. And it’s not about having a bigger budget. Until you can reconcile what your desired endgame is in a specific timeframe and make it clear to your marketing team what they should be building for, you can’t use marketing to drive value early enough in the deal process to get the multiples you want. It’s possible that your CMO is working under the different assumptions about the endgame. You can change this today! Just as you have looked to your CFO to be more strategic, you should think of your CMO the same way when it comes to finding any edge you can to drive the valuation you want. As a CEO, all of this is within your control to fix if you are open to being transparent about the endgame and open to truly listening to what your CMO is probably already trying to tell you. ARE YOU LISTENING?
Research Methodology This was an online survey conducted in early 2022 targeting CMOs who were specifically focused on B2B technology. Respondents were pre-screened for involvement in transactions and tenure in marketing, there were 119 respondents overall and after scrubbing the data there were 89 solid data sets. Due to the small sample size, this study should be seen as qualitative in nature since that’s how the stats work, however, because the sample size is so targeted the insights are useful to understand. There were two segments in the analysis, one is characterized as ‘established CMOs’ and one is characterized as ‘broad market CMOs’. The ‘established’ segment (EST) was made up mostly of hand selected CMOs in the industry who had 5-10+ years’ experience as a CMO and 15-20+ years in marketing overall, with the bulk being 20+ years in the industry supporting 5-10 transactions. These would be marketing leaders I consider to be the most well respected, enterprise-class CMOs in the industry, having supported some of the bigger, well known tech brands in B2B. The companies they represent tend to have more mature systems and processes indicating they tend to be attracted to or involved with companies that are farther along in marketing maturity. The ‘broad market CMO’ segment (BRD) was made of people with a range of experience as CMOs with under 15 years’ experience in the industry. They have supported a range of transactions with most being 2-4. I would consider these to be marketing leaders supporting a broader range of company sizes from start-ups to growth stage where foundational systems and processes are still evolving in organizations where marketing as a function is less mature.
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