Just Add Marketing? Not So Fast My Friend

People think the best businesses are ones that have little marketing spend and get all of their business from organic sources or word-of-mouth. This can be an indicator that the product is unique, has no satisfactory substitutes, and absolutely rules. Think Sriracha, Trader Joe’s, Ferrari, Kiehl’s. Everyone knows these brands despite little to zero advertising done on their part.

But other times, little or zero marketing spend means that the business doesn’t have much of a customer acquisition strategy at all. Or it means they attract customers via organic channels, but can’t get paid acquisition to work for them. Or (especially in B2B services businesses) it means there’s a key person on staff, usually the owner, who is entrenched in the industry and has the relationships needed to make the cash register ring. Buyer beware.

Contrary to popular belief, the best businesses have high sales+marketing spend, measure it maniacally, and use this spend as a barrier to entry against competitors. It’s a form of cumulative advantage – as you begin to win market share, this allows you to spend more to acquire additional customers, which begets more customers, which allows you to spend money on providing the best product/service, which attracts more customers, which allows you to spend EVEN MORE on acquiring customers. And at some point (especially if paid acquisition is your primary acquisition source) it’s nearly impossible for competitors to compete. Because you have the best customer acquisition mousetrap and can spend the most money to acquire new customers. Which means you’re always in the top spot on Google, Facebook, TikTok, and out-of-home. And then you win.

So the next time you look at a CIM, and the broker proudly proclaims that all you need to do is “add marketing” – take a step back and think about how the business earns revenue in the first place. Are you buying a business reliant on a key person who generates sales? And will leave 3-6 months after you buy the business? Or are you buying an established customer acquisition system, one that can be improved upon and built into something better? A key question to ask yourself.