• Business Week, Tuesday, April 18, 2006 12 PM

Entrepreneurs involved in startup who don't think they have to allocate funds for marketing had better think again if they want to succeed. That's the message in a provocative essay from Steve McKee, president of McKee Wallwork Cleveland, an ad agency specializing in working with fast-growth companies and businesses whose ad budgets are under $10 million. "As crazy as it may seem, it's common for entrepreneurs to overlook the need for major marketing investment from day one," McKee writes. " 'We're just starting up,' they think. 'We need to get on our feet and then we'll have the money to invest in things like marketing and advertising.' But whether it's old-fashioned meatloaf or brand new technology, no matter how good your product or service is, it won't sell itself. If you can't afford a marketing budget you can't afford to open your doors." McKee said his company did a study of startups and found that among those that established a marketing budget, most followed the percent-of-sales approach, devoting some percentage of their revenue to the marketing function. The amount they spent ranged from 1 percent on the low end to 12 percent or more on the high end. He said there is no magic number as to what percent of budget a startup should spend on marketing, but there are guidelines. "The first is to determine whether your company will be margin-driven or volume-driven," he says. "Volume-driven businesses like supermarkets and hospitals spend a very small percentage of sales on marketing because their sales are high and margins low. By contrast, margin-driven companies like those in high tech and specialty retail have a smaller revenue base but more flexibility to build a higher percentage into their margins. "

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