0 Marketing Automation Selection: Finding a Future-Safe Vendor

Marketers can do a better job of picking their marketing automation vendors if they roll up their sleeves and try. I wrote yesterday about building a requirements document to define the features you'll look for.  But you also need a company that supports your long-term success. Here's how to identify a “future-safe” vendor.

• Past innovations: a history of advanced thinking shows the vendor understands marketers’ needs and suggests they'll adapt well to the future. But it's not just about being first: no one company has all the good ideas.  You also need to be sure the vendor is a fast follower, so its clients will quickly benefit from new ideas invented by everyone..

• Flexible technology: no one can predict exactly how marketing automation will be used next.  This means you need a system that can easily adapt to unexpected requirements. Look for APIs to coordinate with other systems and a database that supports custom objects. These are still surprisingly rare in B2B marketing automation systems.

• Training and support: will the vendor help you to try existing features and proactively train you when they add something new? Both are important if you’re going to get the most from their system. To assess service, ask how support staff are trained, managed, and incented, and talk to existing clients.

• Educational services: will the vendor help you learn about marketing practices in general, beyond training on their system? Vendors are in a unique position to see what’s new and what’s working across the industry, but only some take advantage of it.  The good ones have programs to train client staff on marketing basics and on new tricks as the industry evolves. Some vendor provide benchmarks to make it easier to identify strengths, weaknesses, and opportunities.

• Vertical expertise: how well does the vendor understand your industry, and do they have a particular concentration of industry clients? It’s true that marketing automation is pretty similar across different industries, but each still has its nuances. A vendor who specializes in your industry is more likely to add specialized features your industry needs. Training, support and education are also more likely to be industry-relevant.

• Financial strength: it's not enough to just survive.  A vendor needs resources to enhance its product and adapt to unexpected developments. Financial strength can also come from size, profitability, outside investment, or a large corporate parent. So define it broadly, but do take it into consideration.

• Corporate culture: look for a match between your own company and the vendor. Some of this is based on size and style: big, systematic clients work best with big, systematic vendors. But you also need a vendor with pride in innovation, flexibility, and client success.

It's harder to identify vendor characteristics than particular system features. But features come and go, often in ways you can’t predict. Picking a future-safe vendor is an important part of ensuring your long-term needs will be met.

0 Vendor Selection: Writing a Good Requirements Document

My last two posts (not counting this morning’s detour into Marketo-land) described common errors marketers make when selecting marketing automation systems. How did we come to this?

I see two reasons:

• Marketers are like everybody else. Remember all that yammering about how today’s buyers do their own research, don’t talk to sales until late in the process, and get their information from social media rather than experts? Today’s marketers buy that way too. So the carefully structured, professionally managed selection process is a thing of the past.

• Marketers are marketers.  This means they’re facing more change and a less clear future than other types of buyers, and they’re less experienced with purchasing technology. It’s no wonder they can’t define their requirements as well as someone buying a new accounting system.

But all is not lost. Marketers can do a better job of system selection if they try. Specifically, they can do two things: improve the selection process itself and look beyond features to assess the vendors. This post will focus on the selection process and the next will talk about judging vendors.

As I’ve already written more than once, the key to sound selection process is a good set of requirements. These should be packaged into a formal requirements document so you have them all in one place, easily organized and available to share with vendors. But don’t think you’re writing the document for vendors. Instead, imagine you’ll submit it to the Chief of the Prussian General Staff, who just might slice your ear off if you do a less than thorough job.

Here's what he'll be looking for:

• Background: a general description of your business, including the products, company size, and industry characteristics. This gives a vendor an idea of your key issues and what sort of solution would be appropriate. Remember: a solution that’s too sophisticated for your needs can be as ineffective as one that’s too simple.

• Marketing process: describe your current methods for customer acquisition, relationship development, and retention. Include a channel-by-channel breakdown of your major marketing programs, with the volumes, spending and results for each. Your goals are to define the scope of your required solution and to help prioritize different capabilities. 

• Existing systems: describe the current marketing systems, including the technology, how they’re used, and known problems. This provides additional context for judging the scope of change that’s desired and what’s needed to achieve it.

• Project objectives: only now are you ready to state your goals for this project. You’ve waited this long because the objectives only make sense in light of your current situation. The goals you state here should be as specific as possible, so you can later check that proposed solutions  address them.

• Data sources: describe the internal and external systems that will feed your marketing automation platform. A simple marketing automation deployment might integrate only with CRM. But more complex scenarios could include inputs from Web analytics, order processing, point of sale, accounting, and elsewhere. Present this information in a table with record counts and transaction volumes so it can be used to size and price your solution.

• Required functions: this translates your project objectives into specific system requirements. These include data preparation as well as marketing execution. They wouldn’t generally extend to non-functional requirements like vendor background and pricing, although you could include them here if you’re concerned you’ll forget about them otherwise. Even though these are functional requirements, don’t be too specific in how things should work: you want enough flexibility for each vendor to showcase the best way to use their system. This part of the document is where you're most likely to need outside help: it takes an expert to know what functions are implied by each project objective.

• Use case scenarios: here’s the place to get specific. Pick several key processes, such as specific marketing programs, and describe in full detail how you want them set up. This would include segmentation rules, content creation, processing logic, CRM integration, lead scoring, and any other tasks required to run the program. You’ll later ask the vendors to demonstrate how they would perform those tasks.. The key is to define real projects for your business, not vendor-chosen examples that showcase their strengths and bypass their weaknesses.

These same elements should appear in pretty much any requirements document. What will differ is the degree of detail: I’ve written some requirements documents that are three pages long and some that are thirty. The right scale depends on the complexity of your situation. But even a simple requirements document is well worth the trouble, both to clarify your own thinking and to communicate that thinking to potential vendors.

0 Marketo Raises Another $50 Million: Where Does the Money Go?

Marketo this morning announced a new $50 million funding round, almost exactly one year to the day after raising $25 million in November 2010.  In accompanying commentary, the company also revealed its 2010 revenue was $14 million, that it expects 140% revenue growth in 2011 (meaning about $34 million), and that it has about $70 million remaining of its total $107 million raised to date.

All this new information begs for an update of the analysis of Marketo’s finances that I prepared last year. I won’t go into the same details, but the key figures for 2010 and 2011 are:

This is good news, in that Marketo has managed to increase the all-important Revenue per Client figure by 20%, from $24,900 to $30,900. As I wrote last year, this is a critical problem for the company. (By comparison, arch-rival Eloqua will earn about $70 million this year on 1,000 clients, or $70,000 per client.)

Ah, but there’s a fly in that honey. Remember that Marketo said it has $70 million cash on hand? (Actually, it said “in excess of $70 million” but we’ll assume the excess isn’t large.) Well, last year at this time it had raised $57 million and spent $20 million, so it had about $37 million. That means the company burned about $17 million in the past year. ($37 million + $50 million = $87 million; if $70 million remains then $17 million was spent.)

That $17 million cash loss in 2011 compares with $7 million I estimated that Marketo lost in 2010. (Marketo has never confirmed this figure, although they’ve never offered an alternative, either.) If total costs equal the reported revenues plus cash loss, the company’s costs actually grew even faster than its client count, and, thus, both cost per client and loss per client increased substantially:

Now, Marketo would surely point out that much of the added expense related to sales and marketing costs to acquire new clients (and, thus, future revenues), so “loss per client” isn’t an important measure. There’s some truth to that.  But Marketo has said that it earns back the acquisition cost in less than one year. So that loss per client seems awfully large even allowing for future revenues and timing differences.

Something doesn't add up here.  Marketo began the year with 140 employees and ended with 240, for an average of 190.  Using my rule-of-thumb $200,000 per employee, this gives $38 million in expected costs.  That would put them close to break-even (a good thing), but it raises the question of why actual costs were $51 million.  In particular, was the $13 million difference spent on recurring operational costs (suggesting continued margin problems, at least until growth slows), or a one-time outlay like payments to early investors or staff.

I have no way to know, and Marketo isn't talking, other than to point out that people with access to the answers chose to invest $50 million.  The rest of us will learn more when Marketo files for its initial public offering, which they said could happen in 2012. I’m looking forward to it.

0 Marketers Do a Bad Job Selecting Marketing Automation Systems

I presented my Seven Deadly Sins of Marketing Automation Software Selection during last week’s Webinar with Neolane. (To replay the Webinar, click here.)  If you’re wondering how many companies actually commit those sins, the sad answer is: a lot. Here are some statistics.

• About half of buyers consider only one system, I’m told by various vendors. Some may have known exactly what they needed in advance, but most are just buying the first system that seems to do what they need. And it’s a safe bet they haven’t analyzed their requirements well enough to understand those needs correctly.

• 66% of buyers base their selection process on meetings within marketing. This isn’t bad in itself, but many don’t talk to anyone else. You do also have to wonder how other 34% make a decision if they’re NOT talking to anyone in marketing. (This and the following figures come from the CMO Council study “Driving Revenue Through Customer Relevance”, which I analyzed in detail last year).

• 42% of buyers rely on online research. Again, not a bad source in itself, but far from sufficient. The real problem is comparing this figure and the previous 66% to…

• 25% of buyers consult with in-house IT. Think about that: 75% of CMOs are making a major system investment WITHOUT consulting their IT group. This would be fine if most marketers were experts at technology acquisition. But they’re not. Software-as-a-Service  makes it possible for marketers to purchase and deploy a marketing automation system without help from IT, but that doesn’t make it a good idea.

• 19% of buyers do a formal needs assessment and Request for Proposal (RFP). Again, this means the other 81% are buying a system without a formal buying process. Maybe some are just skipping the RFP, which isn't always needed. But I know from my own experience that plenty of marketers don’t do a needs assessment either. That's a big problem: you can't make a sound choice without one. Remember: when you don't know where you're going, any road will take you there.

• 25% do a pilot deployment. A pilot isn’t essential if you’ve run a good selection process. But for the vast majority of marketers who haven't run a good process, a pilot is their last line of defense before buying the wrong system. That so few run one means the most are buying blindfolded and hoping for the best. Let’s just say that this is not a good idea. 

0 The Seven Deadly Sins of Marketing Automation System Selection

I’ll be giving a Webinar this Thursday on evaluating marketing automation software, sponsored by Neolane. Part of the content will be a list of Seven Deadly Sins of Marketing System Selection.  I thought that was worth a blog post of its own. So here goes.

1. Ignoring Users. Selection teams often don’t take the the time to understand how future users of the system do their jobs today. The justification may be that everything will change anyway, or that every marketing department has similar needs, or that the users themselves don’t know what they need. The cost of skipping this step is that you don’t learn about existing business processes and user skills. This means you don’t identify what processes need to be changed and what training your users will need.  The immediate result is you can’t factor those items into your vendor evaluation. Longer term, your deployment will take longer since you’ll have to stop to gather this information before you can proceed.

2. Lack of Purpose. It’s frightening how often I ask someone how they expect to use their new marketing automation system and am told they don’t know. Buyers who don’t set business objectives have no way to judge what the system should do or to measure its success after the fact. Ideally you’ll have specific, quantifiable goals in terms of numbers of qualified leads, costs, and revenue created. But even general goals like supporting Webinars or running nurture campaigns are enough to give useful direction. Remember the old saying: “When you don’t know where you’re going, any road will take you there.”

3. No Requirements. Even marketers who know what they want often don’t translate those desires in specific system requirements. This is probably the most common sin of all. Formal, written requirements provide a framework to prioritize your needs, explore them with vendors, and make a complete, consistent assessment of what you learn. Without written requirements as a reference, your project can easily descend into chaos: something that made for great medieval artwork, but in real life is no fun at all.

4. Talk Only to Leaders.  Buyers often limit their consideration to a handful of vendors who are anointed as industry leaders by analysts or simply gain the most attention in social media. The theory seems to be that the most popular products do the best job of meeting a broad spectrum of needs, and are thus most likely to suit the buyer.  It’s an argument that only makes sense to people who don’t know their actual requirements. Think of it this way: would you only consider three best-selling automobiles (Ford F-150 pickup, Chevy Silverado pickup, and Toyota Camry)? Of course not, because you have specific requirements that those products probably don’t meet. Chances are you also have a few marketing automation needs that less popular systems actually perform best. You won’t know unless you look.

5. Let the Vendor Drive. Marketers who don’t know what they want often rely on the vendors to tell them what’s important. At best, the salesperson takes the time to understand your business and demonstrates how her system can best meet your needs. But that’s not the same as defining the best solution. More likely, the salesperson will hand you a list of what her system does best and hope you evaluate everyone else against it. It’s true that some salespeople will walk away from a deal if it’s a poor fit, but now you’re relying on the kindness of strangers – and you remember how that worked out for Blanche DuBois. (Poorly.)

6. Focus on Functions. We all love our bells and whistles, and salespeople love to show them. But functionality isn’t the only thing you need to consider in a vendor.  In fact, given that most systems can meet your basic needs, functions may not be the most important differentiator. You also need to consider how well the vendor will train and support you, whether their underlying technology can meet your present and future needs (there’s those pesky requirements again!), their familiarity with your industry, and how likely they are to remain in business. It's harder to answer these questions than sit through a demo, but they’re critical to your project’s success.

7. Work Without Experts. This is the Original Sin from which all others flow. It takes expertise to define objectives, gather requirements, screen the vendors, and run a smooth process. Marketers, like B2B buyers everyewhere, are increasingly trying to do it all without help – and most of them don’t have the time or skills to succeed. If you’re among the have-nots, see whether your IT department or procurement team have the skills to help. If not, find an external expert who specializes in marketing automation systems (for example, Raab Associates). Chances are, their fee will be less than the value of the time you’d spend doing the work for yourself. More important, you’ll end up with a better decision sooner, greatly increasing the final return on your marketing automation investment.