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Cloud Commerce CEO, Michael Zammuto on a Challenging Environment for ‘B’ Rounds
The gap between initial funding and firms shutting down has increased and with overall funding dropping Michael Zammuto says
to expect a massive increase in failures in 2017 and 2018. From 2010 to 2015 the number of companies receiving early stage angel and ‘A’ round investments climbed dramatically. Market forces, tech trends contributed but so too did some concerted efforts to make it easier to form a tech fund. Everything from Amazon Web Services (AWS) to shared workspaces, to better smart phones to better development tools all contributed to lowering the barrier to entry for startups.
As published online today, Michael Zammuto explains the the unintended consequence of this is that those startups did not get access to more VC governance or talent (or luck). Overall funding has started to drop and the gap for later stage, ‘B’ round investments has gotten large to a concerning degree. This creates a special challenge for startups to stand out and demonstrate why they deserve more capital.
To offset this increased challenge, Cloud Commerce suggests reviewing your strategy well before you need to raise money, to start raising money earlier and ask for more. Critical to ‘B’ round funding it to ‘prove’ that the core assumption about how the business will scale is demonstrated, even on a small scale. If you depend upon network effect, or cheap content or clients upselling then focus on optimizing for that metric. Don’t spend unnecessary capital on product enhancements, focus instead on proving you have the model right and just need capital to hit your multi-year projections. You should expect that your ‘B’ round will be more difficult to complete and you have a business to run so get help and stay focused on proving your story.
As mentioned in this LinkedIn post, ‘B’ round fundraising is getting more difficult in 2017 and may stay that way for some time. Starting several years ago, a number of innovations came together to make startups cheaper faster and easier to get off the ground. There are actually a lot of contributing elements. the Journal of Financial Economics report focuses on AWS and certainly cloud services and cloud infrastructure have helped a lot of startups get from concept to beta very quickly. I would add a lot of other things to the list including shared work spaces, freelancer networks, angel investing and kick starter funding platforms and even improved mobile communications and productivity apps.
All these things did cause an increase in Angel funding and that also led to more ‘A’ round candidates and funding. More ‘A’ round funding has not led to more success. Venture firms are not increasing staff along with the increase in early stage funding so their early stage investments are getting less governance and attention. So, at least so far, this has led to more failures and harder ‘B’ round fundraising. Cloud Commerce Consulting is here to help in this process and can position early stage companies to demonstrate the progress and market traction needed to warrant closing that critical ‘B’ round.
About the author
Michael Zammuto is the founder and CEO of Cloud Commerce Consulting. He has helped 6 startups achieve profitability, been involved in six exits and major fundraising rounds. He is an adviser to several companies. He also currently servers as Chief Executive of Completed.com. Zammuto was the CEO of Brand.com and Sapago and was President of Chaikin Analytics and Chacha.com. Zammuto also served as COO of Ontario Systems and was a senior executive with Ecometry Corp. before the acquisition by Golden Gate Capital. Mike’s full profile can be read here.
I have been dividing time lately supporting Completed.com and developing a new selling program for a client in the digital marketing space. That client has a valuable offering and has found an eager market for it but needs a scalable sales architecture to reach their potential.
At Completed.com we have been heads down on a new development cycle. We had a investor commit another $250k and have put most of that towards enhancements to our UX. The team is doing an outstanding job and we have brought some very gifted new people to the team so that project is going very well. I have been doing as much media as possible during this time. This includes a podcast interview with Neil Hughes and an accompanying article he did on The Next Web. We also have gotten great coverage from Cheddar TV, Fast Company, TechCrunch and others so I am very happy with this. It is amazing how full and fulfilling the days can be and the time is just flying by. I am really looking forward to the next release in late June.
The rise of online “mega-platforms”, a small number of sites controlling huge amounts of the internet, is obsoleting traditional Sales and Digital Marketing leadership roles to make way for a new Chief Growth Officer. CGOs drive huge sales growth by combining sales, marketing, operational, entrepreneurial and data expertise and they see traditional marketing and sales tactics not as integrated programs but parts of a whole they construct from the ground up in what we are calling Sales Architecture.
Growth In A World of Giants
Today, any scalable, successful sales and marketing program must start with your strategy for working with the mega platforms that control the internet. The main effect of this is that traditional B2B sales and marketing programs must give way for a single, enterprise Sales Architecture that aligns the entire experience from your target audience’s phone and laptop screen to the successful booking at the bottom of your sales pipeline.
Traffic is power and the power has shifted to the huge and mighty. Every gatekeeper, influencer, recommender and decision maker that you need to reach is on some combination of Twitter, Facebook, Amazon, Google, Yahoo, LinkedIn, eBay, Instagram or a handful of other sites but social marketing won’t let you reach or influence them.
The number of internet users continues to grow but that growth is dwarfed by the surge in the number of websites. In 1993 there were 108 thousand people on the internet for every website. Ten years later it was 19 people per site and today less than 4. So, your website is lost in an endless digital jungle.
The monsters are getting an ever-growing share of all that traffic too. In 2012, ChaCha built the largest PPC social traffic platform in the world on Twitter. We harnessed a deluge of data to align topics and keywords of large influencer tweets to keywords in articles to optimize advertising revenue per session. As a result, ChaCha.com shot up to become the 35th busiest website in the world in just a few months. Today, if a site had that same traffic today it would nearly make the top 10 because the mega platforms are consuming more and more of the traffic.
At Brand.com we built a platform to connect over 100 major news sources to marketers and could (for a while) use content marketing and SEO to strongly influence search traffic. But Google decimated traditional SEO tactics so the ‘above the fold page 1’ spots are increasingly dominated by mega-platforms and sites with authority you cannot practically build. As planned, this helps shift traffic to Google’s paid search offerings meaning you pay for what used to be free. Increasingly, sites like Google are integrating information into their search results effectively hoarding traffic from sites in their own search results. Today content marketing is a powerful tool but without paid traffic sources you will rarely get volumes for large scale marketing programs.
This consolidation means the giants are squeezing everyone else. Publishers are getting killed by the downward trend in advertising rates while marketers are having to pay more and more for access to eyeballs. This means that traditional online marketing, especially so called ‘brand building’ is getting killed with out of control costs per leads (CPL) and campaigns that drive clicks for the behemoths but few sales for you.
Sales Architecture: One Internet – One Pipeline – A Billion Cohorts
Clicks don’t equal sales. Clicks equal cost. Because the mega platforms were built themselves around network effect, at their core they are B2C engines. Every step in the process needs to be built around how these mega platforms can be tamed to profitably increases B2B sales at the end. This means the correct message must reach each person in the sales process at the right stage. This means that online marketing and your inside and outside sales have to work together as a single unit. Small errors in one tactic can be harder to find but cost you dearly in missed growth. Guerilla marketing and the company website or blog and niche sites such as those around verticals have their place but are decreasing elements of the sales architecture. For starters, no activity can be done without clear cohort analysis that connects every marketing and sales decision with the outcome and few organizations have true end-to-end management of their spend.
Extinction Level Event: The Demise of Sales & Marketing
At great firms the traditional border between sales and marketing campaigns has collapsed. These companies are seeing massively scalable success by moving to a Chief Growth Officer who owns the company’s Sales Architecture and views every marketing and sales activity as part of a continuum. I always house sales and marketing together and measured and reward every step from beginning to end. Getting complete cohort analysis and testing of every critical decision and visibility and KPIs at every step is a massively difficult process that many traditional sales and marketing experts cannot tackle.
Traditional sales and marketing roles historically attracted very different types of people and they approach the internet from their silo. Most have failed to keep up with the lighting-fast pace of change. Surprisingly few have any deep knowledge about the internet. Many talk a good game but probe and ask your sales manager the CPL for their leads. Ask them how to social proof during the proposal phase in a world where every company is Googled. Ask them to show you the cohort of close rates for outside sales on leads from content marketing vs. advertising. Or ask them how they connect the dots between the positioning value prop in social marketing with the final pitch. Too often you will find a disconnected process. Many sales people view online marketing purely in terms of market awareness and lead generation. As leads reach the bottom of their sales funnel the tactics and messaging increasingly looks like the same approach as 5 or 10 years ago. Chief Growth Officers, on the other hand, ensure that every step of the process supports the sales team converting the booking by ensuring cohesive prospect experience throughout.
Marketers are even worse off. Many corporate marketers feel totally disconnected from the sales process. So, they strongly naturally resist any integrated pipeline metrics. Few are taught direct response marketing and fewer still know how those responses support the later stages of the sales process. Too often, traditional marketing leaders want the same tall wall between their online efforts and close rate and want to be judged on engagement metrics that make direct marketers roll their eyes.
The Chief Growth Officer owns the Sales Architecture and is comfortable at the entire continuum of the marketing and sales process. They align the sales and marketing resources in new ways that allow them to leverage the mega platforms to drive massive growth. Armed with essential operational and technical skills, this new breed of growth leaders build organizations that use data like never before.
About The Author
Mike Zammuto, CEO Cloud Commerce Consulting
Mike is an Saas and internet executive and expert in organizational transformation and building highly scalable sales & marketing organizations. Mike
- Transformation Executive Who Repeatedly Accelerates Growth to >100%
- Deep Expertise Selling and Marketing High Growth SaaS CRM, PoS, ERP & Revenue Lifecycle from $1k to $5M Price Points
- Top Digital Marketing Expert Who Built The 35 Busiest Website, The World’s Largest Social PPC Network, Content Marketing Network of 100 News Organizations, Massive Global Email Marketing, Hugely Profitable Webinar Programs and Keyword Hyper-Optimized Display Advertising Programs
- Operator – Entrepreneur Hybrid Who Builds Optimized, Data-Addicted Sales Operations That Win
- Case Studies at Stanford Business School & Microsoft Dynamics CRM
https://www.quantcast.com/top-sites Traffic at the mega-sites
http://www.internetlivestats.com/total-number-of-websites/ Users Per Website