Speedinvest Blog

Startup Marketing in a Recession


Dieter Rappold

March 22, 2020

Economist Paul Romer once said, “A crisis is a terrible thing to waste.” But how do you survive or thrive in a crisis when your marketing budget has been slashed?

Is the Coronavirus ‘the black swan’ of 2020? After more than a decade of economic growth and a roaring bull market everyone was waiting for the tide to change. COVID-19 seems to be the trigger that made it happen. The first COVID-19 case happened in China in November 2019, and as of March 19th, we count +240,000 confirmed infections globally. On Feb 12th, the Dow Jones hit a high of +29,500 points. On March 19, it crashed below 20,000 — a loss of +30%. And this is just the beginning.

Time to rethink your marketing budget

If you are an ambitious seed-stage startup trying to raise a Series A round in the next 12–18 months, you probably had a very aggressive marketing, sales and hiring budget set for 2020 to achieve 3x to 4x YoY growth. Well, it is now time to reevaluate and create a serious crisis management plan for your marketing efforts.

General approach

  1. Be quick. After 10 years of boom, it is hard to believe that times can change so quickly. We often move slowly because we have a hard time changing existing patterns of behavior. But in an escalating crisis wasting time is not an option.
  2. Take a long-term perspective. Downturns require short term actions, but just like your North star metric, stay focused on the future and identify strategic competitive opportunities.
  3. Don’t forget growth initiatives. When everybody else goes into hibernation mode your market still remembers who stood strong and was there. Although strict cost-cutting and efficiency improvements are inescapable, make use of new opportunities.

An HBR article analyzing 5,000 companies across the last four business cycles showed that 14% of companies who followed these three general rules actually grew sales and improved their EBIT margins during downturns.

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Image by Peter H from Pixabay

Specific operational best practices

We always have the chance to learn from history and others who endured a severe crisis. And there are some pragmatic hands-on learnings, best practices and benchmarks for these kinds of situations we want to share with you.

  1. Love your existing customers

In times of saturated markets and rising CACs your existing customer base becomes ever more important. Loyal customers are the primary, enduring source of cash-flow and organic growth. Prioritize campaigns and efforts that focus on repeat purchase, cross-selling and upselling. Kick-starting your customer loyalty program and investing in your CRM activities might be a great idea and pay high dividends in the long run.

  1. Refocus on high ROI and growth

During boom times we have the luxury of being able to invest in multiple channels, approaches, formats and growth hacks, some with better ROI than others. Now, it is the time to radically prioritize and focus on those efforts that deliver the highest ROI and propensity for growth. As a rule of thumb, take 90% from your remaining marketing budget and focus only on the top 3 initiatives with the highest ROI. Cut the rest.

  1. Go organic

A lot of your marketing budget goes into paid media — cutting that will help you lower your marketing expenditure significantly. But even in times of diminishing organic reach on platforms like Facebook, there are plenty of options to improve on your organic traffic. A lock-down is the perfect time to clean house. Work on your content strategy, create evergreen pieces of useful content or do a technical SEO check of your own assets. That is always a great investment.

  1. Don’t forget the brand

Brand is the biggest value driver for every later stage startup, so start building it early. Even in the hardest downturns, one should not neglect the brand. Brands reduce complexity, they reassure buying decisions, they are emotional leaders and build an emotional connection with your customer base and bolster trust.

  1. Understand recession psychology

Other than hard quantitative factors such as less disposable income, recessions are also driven greatly by emotion, including fear and eroding confidence. This leads to fundamental adjustments in consumer behavior. The first step to responding is better understanding the phenomenon and segmenting your market based on the changes. HBR has written an insightful article and shares valuable tactical advice, including the chart below.

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Based on the above segmentation, tailor your tactics within the same model.

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Marketing budgets are often cut disproportionately in times of crisis, because they can be cut quickly and very often without letting people go. Try to take a differentiated approach and distinguish between the necessary and the wasteful. Triage your brands, products and services based on survival prospects. Trim your budget like a surgeon and cut loose poor performers and eliminate low yield tactics. Use these times to get company-wide buy-in for revising marketing strategies. Then, you are in a great position to lookout for new opportunities that emerge from the ashes.

Speedinvest is a leading pan-European, early-stage venture capital firm. Our portfolio includes Wefox, Bitpanda, TIER Mobility, GoStudent, Curve, CoachHub, Schüttflix, TourRadar, Adverity, and Twaice. Sign up for our newsletters to get our exclusive content delivered straight to your inbox.

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