Marketing is a pivotal strategy for fostering growth within early-stage business-to-business (B2B) startup firms. However, despite its potential to drive success, many such enterprises opt to forego marketing endeavours, as highlighted by a study authored by a Smeal College of Business professor and featured in the Industrial Marketing Management journal.

Delving into the realm of systematic marketing, wherein firms continuously gather and utilise customer data to enhance their offerings, communications, and distribution strategies, the researchers scrutinised the landscape of startup firms. Their inquiry centred on identifying which startup ventures embrace systematic marketing, the factors motivating their decision, and the dividends reaped from such investments. These insights could serve as a compass for future startups, aiding in discerning the feasibility and timing of adopting systematic marketing practices.

Gary Lilien, the Smeal Distinguished Research Professor of Management Science and co-author of the study, likened their findings to a recipe guiding marketing into the startup formula. Collaborating with University of Technology Sydney Associate Professor Ofer Mintz, the researchers harnessed data from Equidam, an online valuation platform. Their analysis encompassed 693 startup firms launched between July 2016 and April 2018, spanning business-to-business (B2B) and business-to-consumer (B2C) domains. Two hundred firms furnished financial data for 2019 and 2020, offering a comprehensive view of their trajectories.

It’s worth noting that the startup firms engaging with Equidam represented a self-selected cohort, distinct from the broader startup populace. To mitigate potential bias and bolster the robustness of their findings, Lilien and Mintz embarked on a supplementary study. This involved surveying 377 startup entities drawn from a Survey Sampling International panel of entrepreneurs.

The research unearthed a dichotomy: while 55% of the sampled startup firms reported implementing systematic marketing practices, a significant 45% abstained from such endeavours. Notably, early-stage B2B startups emerged as the least likely candidates for embracing systematic marketing despite standing to gain the most from its adoption. Conversely, early-stage B2C startups exhibited a higher propensity for systematic marketing, albeit with lesser associated benefits. Furthermore, late-stage B2B startups derived diminished returns from systematic marketing compared to their developing counterparts.

Intriguingly, the decision to embark on systematic marketing greatly influenced firms’ valuations. Alarmingly, most surveyed startup firms—60% from the Equidam study and 61% from the validation survey—misjudged the necessity of systematic marketing, thereby incurring detrimental repercussions on their valuations.

The study presents a nuanced framework informed by insights from interviews with startup founders, investors, and consultants. This framework zeroes in on the repercussions of systematic marketing adoption by startup firms. Crucially, the efficacy of marketing endeavours and their potential to augment a firm’s valuation hinge upon several factors, including the firm’s customer base (direct consumers or businesses), developmental stage, prior entrepreneurial experience of the management team, and industry environment.

Ofer Mintz reflected on the study’s evolution, initially envisioning it as an exploration of the optimal marketing strategies for startups. However, early interviews revealed many startup managers’ pervasive disregard for marketing, often due to resource constraints. This epiphany underscored the broader significance of their research endeavour.

Notably, early-stage startup firms exhibited a greater propensity for systematic marketing when endowed with management team members boasting successful entrepreneurial track records and backed by investors with vested financial interests. The researchers observed that certain B2B startup ventures, particularly those from existing companies, boasted smaller yet more discerning customer bases, affording them a heightened ability to substantiate their credibility through marketing endeavours.

For these companies, marketing transcends mere promotion; it encompasses sales, technical support, and a profound comprehension of evolving customer needs, often culminating in co-development initiatives with clients. By engaging in systematic marketing, startup firms furnish discernible signals to potential investors, signalling their commitment to quality.

The implications of this study extend beyond the realm of startups, offering valuable insights for venture capitalists seeking to navigate the intricate landscape of investment opportunities. Nonetheless, the researchers underscored the need for further research to elucidate strategies for encouraging early-stage B2B startups to embrace systematic marketing practices.

In essence, this research serves as a beacon for both startup aspirants and investors alike, shedding light on the pivotal role of marketing in shaping the trajectory of emerging ventures. By leveraging these insights, stakeholders can chart a course towards sustainable growth and value creation in an ever-evolving entrepreneurial landscape.

More information: Ofer Mintz et al, Should B2B start-ups invest in marketing? Industrial Marketing Management. DOI: 10.1016/j.indmarman.2024.01.003

Journal information: Industrial Marketing Management Provided by Penn State