Over the past eight weeks we’ve been running an extended thought experiment. What if we had a chance to seek an investment for our creative business on Shark Tank. This is wholly imaginary. Venture capital is not available for professional service businesses like ours. But by asking the question, and pretending to put our practices under the scrutiny of the Sharks, we can see our business from different perspectives, and expose our flaws. After all, we may not have outside investors, but we ourselves invest so much in our work. So when it comes to the business side of creativity, we ought to be thinking a bit more like a Shark.
What We’ve Covered So Far
In our series we’ve considered all kinds of questions that founders get grilled with by the Sharks. We addressed the fundamental question of equity, how do you set a valuation on your company’s worth. We exposed the important difference between equity and revenues. We zeroed in on the major cost center of a creative practice: your time, and the compensation you get for your time. We also considered the issue of debt, and the danger of over leveraging your company, examining an often overlooked area of debt—time debt. We also evaluated the dynamics of scaling a creative practice, and the dangerous step costs involved. One of the challenges to scaling is the burn rate associated with delivering on your projects and services. In any market driven business, the dynamics of competition are always a major driver, and we need to be prepared to distinguish ourselves from the competition. And, last week, we considered the alternative to investor help, by forming a partnership.
Coming Full Circle
This week we’ll conclude our series by bringing us back to the fundamental topic of marketing. Every aspect of the financial health of your businesses can be linked back to marketing in one way or another. If we don’t maintain more demand than supply we will be weakened and vulnerable to all the problems of unprofitability, over leverage, low compensation, competitive pressures, and the rest.
So let’s look at an aspect of marketing that frequently comes into the spotlight in Shark Tank: the problem of prospect education.
How Do You Explain the Value of Your Service?
Many times in the Tank a founder will present their product and really wow the investors. After the presentation, the Sharks clearly see the value of the product, and freely acknowledge that they will become an enthusiastic customer—but they don’t make an investment. Their reason is that the presentation was necessary in order for them to see the value. In other words, without the presentation, if they had merely seen the product on a store shelf, they would have walked right by. When understanding the value of a product requires a presentation, the company is faced with a huge marketing problem. The need to educate a customer in order to communicate value is a challenge that the investors usually consider too insurmountable to make an investment.
Some products suffer from this challenge. But pretty much all creative services face the prospect education problem. When selling requires presentation, your marketing is not doing the heavy lifting that it needs to. In order to effectively market a creative practice, we must face this challenge head on.
What Your Prospects Already Know
At one level, every business understands their need for a logo, a website, and other supporting tools for them to operate as a business. We don’t need to educate them about that. But let’s reconsider the topic of competition again from this perspective. If your prospect knows that they need a logo, a website, and some other collateral, and they survey the landscape for sources to provide these services, how do they know the difference between your branding services and your competitor’s? Or, for that matter, how do they know the difference between your multi-thousand dollar offerings, and what they see that they can get for a few hundred on Fiverr or Upwork?
This gulf is your prospect education problem. And it’s a big one. It’s an uphill climb. Writing a couple of posts on the importance of branding, featuring case studies on Apple or Nike, is not going to cut it.
PinPoint Positioning to the Rescue
This brings us back again to the topic of PinPoint Positioning. There really is no solution to the prospect education problem for the generalist creative firm. If you were to face the Sharks with a pitch about the importance of branding, as a generalist, they would all drop out.
Creative specialists, on the other hand, with strategic and tactical insights into specific applications of branding within focused industries, are able to communicate value and justify higher rates and fees.
The more readily your prospect can connect their needs with your solution, without long conversations, or in-depth presentations, the more your marketing will deliver prospects ready to invest in the value you offer. The more general your pitch, the more you will need to rely on your presentation. But getting to that all important presentation will not likely be aided by your marketing efforts, rather you’ll need to depend on other avenues such as referrals and recommendations—which leave you without control, and exceedingly vulnerable to competition.
Now when you specialize, you do reduce the overall size of your market (at least that which you actively seek) from anyone with a business to those within your niche. But as any expert marketer will tell you, “There’s riches in the niches.”
A Preferable Exit from the Tank
Quite often on Shark Tank, an investor will commend the founder, encourage them to keep going, and express the reality that they have a solid and profitable business for themselves. But since it’s niche, and not scalable, it’s not something that they can invest in. If you were to ever go on Shark Tank, this would be the best possible outcome. And so you, as the most important investor in your business, ought to be aiming for that kind of feedback. Don’t be the generalist, with a huge prospect education problem, with vulnerabilities from competition, with over-leverage and low margins—who ends up walking out of the Tank without a deal and the discouraging experience of being told in the harsh words of “Mr. Wonderful” that you ought to take your business model out back behind the barn and shoot it.