Go Ahead – Drink the Marketing
As Sajan Thomas, the founder of Thomas Capital Group, likes to say to his clients when advising them on messaging around their fund raising:
The simplicity of the statement is brilliant because it nails the point — you won’t get very far if your product doesn’t perform, but simply having a high performing product is not enough to ensure success. And while he is specifically referring to the alts space, the reality is – that message holds true for practically any product or any service in any industry.
Think about it - how many truly crappy products can you name that remain on the shelf long after people figure they don’t work as expected? Eventually, people just start gravitating to something else.
More to the point, if performance were the only thing that mattered in the alternatives business, then there would be no reason for a fund with sub-quartile (or probably sub-decile) returns to even exist.
But obviously, they do…and obviously there must be other factors that investors consider in the allocation process.
I bring this up because of a conversation I had the other day with a client on this exact subject. Specifically, we were discussing the value of investing in other areas of his business like his marketing (because, well… we are marketers), as well as the investment strategy. In the middle of my impassioned and (what I thought to be) persuasive monologue, he stops me cold and says, “dude, people don’t drink the marketing.” Before I could figure out what he was talking about, he directs me to this article on Jim Koch’s philosophy about running a business.
If you are unfamiliar, Jim Koch is the founder of Boston Beer Co., maker of Sam Adams, and a pioneer of the craft beer movement – a true American icon.
Despite it being a consumer brand unrelated to the alts space, it didn’t take much to understand his point. The article reinforced his - and really most of his peers - long-held belief that quality (i.e. “performance”) is the only thing that matters.
Again – I am not arguing the necessity of good performance. After all, no amount of marketing is going to overcome a sucky product in the long-run. But…this is a pretty shallow interpretation of Jim Koch’s real message.
Koch is well-known for putting the customer first. In his words, it was essential to “ensure that customers receive a great experience.” That’s right – your experience with his beer is what mattered to him. It’s not that the product wasn’t important – it was just that the customer was more important.
I get that we are talking about a consumer product available everywhere and not an “institutional,” only product for the highly sophisticated. But the takeaway is exactly the same. An investor’s connection to your fund has more to do with her experience and interactions with it and the managers then does a few extra basis points of return.
More to the point, his conviction around the importance of customer experience was backed by a boatload of money. I am sure early on that a chunk of his resources went into product development - but over time, he shifted a massive amount to non-product related investments (like his marketing).
How much are we talking about? Looking at the 2017 earnings, it amounted to a whopping 28% of revenues - up from 25% the year before.
Just as a hypothetical, ask yourself, how much more likely are you to effectively shape your story and get your “reputation to precede you” with your target audience if you were to invest 25% of your annual revenues into messaging and marketing? Actually, let’s be more realistic. How much more likely would you be to connect with your audience if you just allocated 2.5% of your annual revenues into marketing?
Doesn’t sound like much, I realize – but in an industry where the average marketing budget is essentially zero, it doesn’t take much. In Jim Koch’s world, that would be like throwing a party with a couple of dozen kegs while all of your neighbors are throwing parties with just a couple of beers.
By JD David