B2B Startups Dodge Marketing - And This Could Hurt Their Valuation

There's no insult intended, but some B2B startups are clueless about marketing. They don't send emails. They don't use social media. They don't do anything.

And that could hurt them, judging by a paper written by two professors -- one from the Smeal College of Business at Penn State and the other from the University of Technology Sydney.  

According to a Penn State report on the study, 55% of the sample startup firms conducted systematic marketing, while 45% did not.  

The researchers discovered that “early-stage B2B startup firms were the least likely of all B2B startup firms to conduct systematic marketing but the most likely to benefit from it, while early-stage B2C startups were the most likely to conduct systematic marketing but the least likely to benefit from it. Late-stage B2B startup firms also benefited less from conducting systematic marketing than early-stage firms,” this report states. 



The paper was co-authored by Gary Lilien, distinguished research professor of management science at the Smeal College of Business and Ofer Mintz, associate professor at the University of Technology Sydney. 

They write that conducting systematic marketing “provides the greatest benefits to the valuations of early B2B start-up firms but is detrimental to the valuations of early B2C start-up firms.” 

Despite that incentive, many B2B startups choose to not engage in systematic marketing. 

"I would ask if, say, an investor gave you $10,000 or $100,000, or whatever additional number, how much would you spend on marketing? And most would say zero," Mintz said, according to the Penn State report. "That was the 'aha' moment, when we knew we were on to something bigger than we thought."

"Marketing for these companies is really sales and tech support and getting a deep understanding of the evolving needs of the existing customers and co-developing products with them," Lilien added.

The researchers also found that “the success of marketing efforts, and the likelihood it will improve a firm's valuation, depends on the startup firm's type of customer — direct consumers or other businesses; early versus late-stage development of the firm; previous startup experience of the firm's top management team; and the environment of the firm's industry."

It's likely that these startup don't have many email addresses to work with, but they could build their email lists by engaging customers and offering them content. Some startups lack resources. But owners with prior entrepreneurial experience are most likely to jump into marketing. 

As with many academic studies, don’t think that this paper reflects things taking place this month. 

Lilien and Mintz used data from the online valuation platform Equidam, analyzing 693 B2B or business-to-consumer (B2C) startup firms that had launched between July 2016 and April 2018. In addition, 202 also provided current and anticipated financial information for 2019 and 2020.

The startup firms had contacted Equidam for financial valuation, making them a self-selected population different from the larger startup population.” the authors write.  

Lilien condlues by saying, “We have a recipe that tells you whether or not to add that marketing side to this particular dish.”

The study was published in the Journal of Industrial Marketing Management

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