I'll use social media to grow - at almost no cost!

I cannot tell you how many times I have heard this phrase - or something like it. Any my response is:

I am a direct person. I could politely say something like "History would suggest otherwise." or "I've heard of that but never seen it.", but the truth is, social media alone cannot grow your company and it is distinctly not free - or at almost no cost.

How much then?

I love it that I learn from the companies I help grow. So naturally, during a call with one of those companies going over their financials, when I encountered a social media budget at 50% of total expenses, I asked...

I like numbers. They tell me a lot. And of course the explanation for them is the thing I learn the most from. Unexplained numbers are like magic tricks... (I am a magician as well... but that's for another day)... They are fun to watch, but not informative as to how you will grow your company. (Unexplained numbers, like magic tricks, are not informative as to how you will grow your company... even if you are in the magic business we will need a bit more in the way of explanations.)

The numbers derive, ultimately, from the need to acquire and retain customers. Customers, by definition, are people that pay me. And according to a VC I met long ago, people that pay me again and again. So the analysis starts there.

If I need 100 more new customers each month than I had the previous month, I need to increase my outreach each month commensurate with that increase in new customers. How much more of what do I need to generate each additional new customer?

Suppose it takes me 1 minute to communicate with one potential customer to try to turn them into an actual customer, and one in 10 becomes a customer based on this minute. That's 6 customers/hour at 8 hours/day, or 48 customers a day, about 250/week, or 1,000/mo for each full time employee engaged in this. If I pay such a person $10/h, that's $10 per 6 customers, or a bit over $1.50/customer.

Obviously, if it takes 2 minutes, that's $3/customer and if 1 in 100 ends up buying, it's $30/customer. The whole mechanism scales linearly unless and until I saturate the market and it becomes harder to acquire those new customers. And of course there is the low hanging fruit that might allow me to gain the easier to acquire customers first at a lower cost per customer. And I need to add sales people which requires finding, hiring, and training them, etc.

How does social media change this?

It doesn't! The fact that I use social media to acquire customers may make communications more efficient, as it often does, but even so-called "viral" methods do not really change this equation. So how do we lower the cost or increase the volume to scale?

Just as there are better and worse placements for print advertisements, there are people who are more trusted among more members of specific audiences in the different venues in the social media world. And how do you get in front of the eyes of the people they trust?

• You pay them: Paid media means you pay the blogger with a million bicycle riding readers per month to talk about your great new bicycle shifter.

• You earn them: Earned media means you convince the blogger with a million car racing readers per month to talk about your great new brake pads.

How much does it cost and how does it work?

Paid media pricing differs on a case by case basis. Unless you know the particulars of your specific field, you cannot get realistic estimates. One of our portfolio companies, MagnaBid, estimates that to increase customers in one of the two sides of one segment of its market costs under $16/customer in volume. The volume required is on the order of 30,000/mo at some specific point in the growth curve, and that means that the social media budget is $480K/mo. Not free media! As one of my clients, (Ben who runs MagnaBid) pays me (indirectly) for this market presence, but he didn't know I was going to include him here, so it's not really paid media in the same sense as directly generating sales to scale his company. Rather this is paid media for marketing. Except again, Ben didn't know he would appear here.

Earned media is different - sort of. One of my angel/advisory board members (at least until he reads this) is Brian Wang. Brian has a social media presence that gets 1M readers per month in the emerging technology space. He earns his living by getting paid to write on various subjects and perhaps in some cases on a per click basis for advertisements associated with his presence. He hasn't paid me for this mention, and thus he has earned it. But he did so by spending an hour or so on a call with me and more time reviewing this before release. So the cost he paid was in time and effort. If he calculated all of it, he might find I am more expensive as earned media than he is as paid media. But he didn't do this for the media. Me and my perhaps 10,000 readers pale by comparison to his million monthly readers.

In either case, you will need something else... an expert in how to apply these methods to your circumstances, what they cost in your specific area, how to go to market that way, etc. Of course we work with our angel/advisors like Adam Gordon to help companies build the basis for their media by creating brands and ...

OK. So perhaps that was a bridge too far. Adam didn't know I was going to list him here in this way, and he didn't pay me to do it. But that's what paid/earned media might look like. I do have a business relationship with Adam, and we are collaborating on helping grow cyber security companies, as well as other A2E clients. But that is not an advertisement. It's just a full disclosure of interests... It's called transparency, even if it does work kind of like an ad.

Here's what Adam said about it (edited):

"... it’s just not clear that SM [social media] makes it better consistently (sometimes it might make it worse). ...operating the system takes a lot of time and, because that may appear "free," companies actually end up sinking a lot into it. This is exacerbated when there are multiple channels to be run. I look at it this way: anything that touches a customer/prospect/influencer/whatever is a brand experience and that is, simply, never free. You have to show you care at every touch point, and that takes resources.

... misusing SM (or any outreach mechanism) totally screws up the algebra of marketing... Jay Levinson (the guy who invented the Marlboro man) said (and current data tends to still agree) that it takes 9 touches to get anyone to do anything (fill a form, click a link, etc), and people only see about 1/3 of what you send. So, that math is easy ... 27 outreaches to get 9 touches to get someone to do something. BUT if 10 of those outreaches are off-brand, they don’t count, so you have to do them all over again, totally screwing up the math.

That's where I see most companies who fail at SM fail:

• They just start throwing stuff out there with no thought about how it all relates to one another (context).
• They think that interns and newbies can run the SM - which seems like an OK decision, until they screw up and harm the brand, then the company realizes they need to have someone doing it who knows a thing or two, driving operational costs up even more
• Beyond the labor costs of running [an SM campaign], there is what I call Brand Costs; these are nefarious as they are invisible. They are the costs that are impossible to address, as they are the costs of people not coming to you (because of a branding problem).

My real point

We are just getting started in this arena, and I don't want to belabor it, but my point is that "free ain't free". You have to earn it, and there is a cost associated with use of social media to grow your company. As your company scales, the costs scale, and you need to get it clear in your plans and budgeting in order to be convincing to a reasonably knowledgeable investor or anyone else.

And now for my earned media not paid per click advertisement!

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In summary

Our companies make money the old fashioned way - they earn it!

I, on the other hand, make my money the new fashioned way. I help other folks earn it!