Prospecting your Startup to Bankruptcy

As a startup, you have limited time to sell and a small team. If you focus on lead generation without a good understanding of your customer segment, it is easy to overwhelm your fledgling sales team with leads that will not covert. I once heard an expression from another sales manager, “It’s all about top of the funnel.” — this is true, only if you are pouring the correct leads at the top of the funnel. Otherwise, you end up with $0 sales or a handful of poorly fitting customers that will quickly churn.

Let me tell you a quick story about how I built the most awesome and terrible prospecting strategy of all time, and how it failed miserably because I did not understand customer segmentation. In 2014, when I joined FameBit as the head of sales, I was fortunate to have many business relationships that were qualified leads: high-growth startups that were willing to test cutting edge marketing channels. At the time, we were selling branded content at scale — native YouTuber video integrations. I heavily prospected my existing business relationships and managed to close about $500K worth of business in a few months. However, I needed to maintain momentum and our other lead generation tactics were not bringing in enough lead volume to continue to scale our revenue. To make matters more complicated, we had NO money ($0 for marketing). I was desperate to find ways to scale and so I continually brainstormed new strategies.

That year I attended the MAGIC trade show in Las Vegas to try to drum up business from fashion brands. At the show, I grabbed a copy of the catalog of brands in attendance. The catalog contained the name of 1000s of fashion brands from all around the world. I then devised a plan, which was as follows:

  1. Hire a 3rd party company to identify ~5 key decision-makers at each company and find their email addresses — I then hand parsed these to clean up the final target list.
  2. Blast each contact with a targeted, customized email: for example, a shoe brand would receive an email including example videos of YouTubers reviewing shoes, and a jeans brand would receive haul videos featuring jeans.
  3. Leverage a 3rd party company to send out emails on my behalf, including a series of follow-ups (~4 follow-ups on average, at different intervals).
  4. Deposit warm responses directly into my inbox seamlessly for qualification — I used a Gmail plugin that allows you to move an email from one inbox to another.
  5. Track everything in a custom Salesforce dashboard to gauge effectiveness.

Our prospecting email was relatively simple and said (in a nutshell): “YouTube is filled with growing channels that are interested in partnering with fashion brands like yourself,” and included ~3 video examples of native sponsored content. It also included a brief explanation of our self-service and full-service offering, and a call to action for each: 1. sign up for our online platform for free, or 2. set up a call to discuss our higher-tier VIP service offering ($15K and above per campaign, at the time).

The result was a reasonable response rate of ~10%. Which, you are probably thinking, is not bad. My calendar was overwhelmed. I was booking 15 to 20 meetings a week with new prospects from all over the globe, all eager to learn about what we were offering. After about six weeks of “drinking from the firehose”, I had generated a total of $15,000 in sales and wasted a huge amount of my time. The conversion rate from these leads was significantly worse than the conversion rate from any of our other lead generation tactics, even though alternative tactics generated much less volume. If we had continued down this path, we would have quickly gone bankrupt.

The root of the problem was segmentation. Our product was brand new and only interesting to innovative companies that understood digital marketing. Our ideal customer was trying to disrupt legacy fashion brands through online business models and monthly subscription products. Instead of properly defining our customer segment and refining our focus on a narrower pool of customers, my new strategy pursued everyone. The list of brands included huge multi-national corporations that focused on selling to retailers and did not market directly to consumers, mom-and-pop shops, ultra-niche online fashion brands that couldn’t afford a $15,000 marketing campaign, wholesalers, and more. Many of these brands were interested in learning about our product, but they weren’t interested in buying (at least not anytime soon!). Always properly segment your target customer on multiple dimensions before you build a volume-based prospecting strategy (a topic for a future post).

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