Influence(r) Marketing - the Magic Bullet for Private Equity
By Robbie Vann-Adibé, CEO of Inpulsus.
The conversations in the world of private equity are often quite different from the day-to-day conversations that occur in operational businesses. The private equity mindset is geared towards what changes can be made to a company (and how much will they cost) to impact the business’ financial parameters substantially, so that in some near term liquidity event, the private equity firm realizes substantial uplift from what was originally invested.
When talking with individuals in the world of Private Equity, especially those whose backgrounds are rooted in technology and have seen the impact significant technological implementations could have on a company; the language that often gets used is the notion of the ‘magic bullet’: a piece of technology that results in either large revenue increases, large costs savings or substantial gains in productivity.
Examples include bringing in more advanced robotic manufacturing systems, cost savings from implementing procurement management systems, or streamlining the sales process by implementing a CRM from one of the many providers such as Salesforce, Oracle, etc. Yet to drive positive return on growth investments in today’s market, there simply needs to be more at play.
Marketing as the new focus for Private Equity
“Marketing is the natural nerve center to organize around as the business transforms operations and business processes centered on the customer’s experience.”
- Brian Solis, Global Innovation Evangelist at Salesforce
The Marketing function in many organizations is an area of great opportunity for making changes that can transform the operational parameters of a business. Today, this area is undergoing the same upheaval that ERP and CRM had in other areas of the business such as Finance, Operations and Sales. Unfortunately, many firms are hooked on marketing approaches that originated nearly twenty years ago, such as adword or keyword buys. The efficacy of these approaches is now mixed with rising costs.
Many PE firms have acquired businesses that were born in the era of Pay Per Click (PPC) Marketing models; ten years ago competition for ad/keywords was limited and the ROI of such activity was very high. The Marketing teams of early stage organizations then could build pipeline cost effectively, and the noise in the system was low - no bots firing against your keywords etc. Today - not so much! The primary beneficiaries of the increase in spend on PPC have been the ad networks themselves. In fact, a North American VC fund did research in 2019 that suggested that nearly 50%(!) of early stage capital raised went directly to Google, Facebook and Amazon to fund media buys.
Influence(r) Marketing as a foundation for Substantial Growth
One of the most difficult things to prove is the impact of one form of marketing over another; the issue of which marketing level actually resulted in the eventual sale is difficult to answer. Most companies simultaneously pursue multiple marketing channels, as they have to - they can’t risk performing these activities serially to see which one works. Marketers typically then pursue all activities and hope that something works - but which one? How can a company wean itself off PPC yet still see positive growth in awareness and consequent revenue generation? Welcome… Influence(r) Marketing.
Influence(r) Marketing is a collaborative and strategic discipline aimed at developing relationships with individuals who generate high-impact conversations and have established a relationship of trust with targeted audiences. Originally coined as “Word-of-Mouth Marketing” during the early days of social media, the current breadth and depth of impact that Influencers - both in B2B and B2C - can have on your businesses is significant. Another way to describe this important shift is that a business is now much more defined by what the market and customers say about it versus what the company says about itself.
I was very fortunate in my career to be part of a ‘very’ controlled experiment. As the Chairman of Traackr, now one of the leading technology platforms for Influence(r) Marketing, we bootstrapped the company for the majority of its early life and had limited access to capital. This meant that we used Influence(r) Marketing as the ONLY method for many years to generate sales. The company’s lifetime revenue up to Dec 2016 was 300% vs initial capital raised. This is an upside down metric relative to most companies in the SaaS world, however in a great way: the typical ratio is actually inverted i.e. if lifetime revenue is $X, then capital raised is $3X. Essentially, the large amounts that SaaS companies typically spend to ‘find’ the market, the buyers/customers, was dramatically reduced by Traackr via use of its own Influencer Relationship Management [IRM] product as the foundation of its growth, using its own toolset in both marketing initiatives and sales practices.
Richard Brick, Investment Principal at True, comments, “The digital world is fast-changing and at times difficult to navigate. In the wider data-focused climate, the opportunities within digital marketing for arbitrage are reducing and, as such, when we identify a game-changing lever that can transform our portfolio businesses, we tend to employ them quickly.”
The Substantive Value of Transformational Change
Mark Gillet at Silverlake Partners observes, “As I outlined in my section of the book, The Operating Partner in Private Equity vol. 2, there are frameworks for assessing and implementing transformational versus incremental change, and new approaches based on transformational technology systems are part of that equation.”
A piece by the consulting firm, Oliver Wyman, describes how substantive this impact can be: each $1 increase in EBITDA in a private equity portfolio company is worth $8 -10 to the equity holders in a private equity fund. This then translates into a dialog that goes something like, ‘if I spend $1M/$10M/$100M on making system/process improvements, what is the impact on the operating parameters of the business such that I will see that investment played out manyfold in the business?
As my former colleague, George Kadifa with Sumeru Equity Partners observes, “Private equity firms such as mine are actually buying technology companies and restructuring them to create value in a variety of ways; one obvious opportunity in some of these situations is the reinvigoration of the sales and marketing function to more effectively create and fulfill demand; Influencer Relationship Management (IRM) is an obvious approach to adopt in these firms.”
Finding the Market fit for PE and Influence(r) Marketing
Over the years I have seen the adoption of Influence(r) Marketing behave as such a ‘magic bullet’ for a variety of companies. With respect to the world of private equity, there are three reasons why Influence(r) Marketing can provide a transformative impact on the business:
Influence(r) Marketing is a core component of the new emerging sales and marketing best practice that emphasizes relationships, focus and intelligence over blind spending and spray & pray tactics and is a “magic bullet” for making significant change in growth and efficiency.
As part of the new go-to-market technology stack, IRM technologies have evolved over the last 10 years enabling the Influence(r) Marketing practice to drive change to fundamental operating principles by delivering revenue increases, cost savings, and productivity increases.
The full embedding of Influence(r) Marketing in a business goes far beyond simply implementing a new system or a series of marketing campaigns. It can positively impact fundamentals of a company, thus creating ripe conditions for shaking up the status quo and overcoming organizational silos toward greater customer-centricity and market relevance.
Influence(r) Marketing and its adoption into the fabric of a company can be transformative. I noticed something time and time again at Traackr, which is that customers can use Influence(r) Marketing, not just as a more effective marketing and corporate communications platform, but as a fundamental operating principle within their businesses. The results can drive massive impact across all 3 areas: revenue increase, cost savings and productivity increases.
Embedding Influence(r) Marketing throughout PE portfolios
Embedding Influence(r) Marketing within management thinking can drive fundamental and positive shifts for the company as described above. This is the type of thing the private equity folks can pull off because they often have taken part or full control of a business and are in the process of completely changing operating principles (which may involve substantial personnel changes). But rarely is transformation as simple as implementing a new technology system and then magic happens. There are often business process reengineering (BPR) efforts required to ensure that the business utilizes the technology as intended as well as building an experienced team with knowledge of how Influence(r) Marketing programs should be executed.
If you’re in private equity, it’s important to recognize that implementing Influence(r) Marketing into a company can provide a transformative impact on the business and lead to dramatic changes in how customers perceive the company. One note of caution: Influence(r) Marketing at its core is a form of marketing that requires a more complete alignment of message and product with one's potential advocates. Bottom line, if your product is not that great, then don’t do it. Influencers will destroy you in the market, so spend the time to fix your product/service, then go hard at Influence(r) Marketing.
Let the games begin…
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