VIRAL MARKETING

I‘ve been approached by a major US book publisher to write a book on New Collaborative Enterprises, with the rather unwieldy working title shown above, and also by several universities to develop a Distance Learning program on the same subject, based on my experience advising over 100 entrepreneurial businesses. Given my new priorities, I don’t know when, or even if, this will get done, but in the meantime, I’m going to blog on the subject from time to time. Recently I’ve written about Avoiding Landmines and about Innovation, two of the 15 steps in ‘The Process’. Today’s article is an overview of Viral Marketing, the principal way that successful entrepreneurs find new customers.

With every additional business scandal, the public becomes more cynical about advertising, PR and product claims. The concept of viral marketing is not new: Seven years ago Jeff Rayport of Fast Company introduced its six fundamental principles: Use stealth and subtlety to convey your message, give stuff away free up-front, exploit peer-to-peer networks to spread the message, make the message memorable and ‘sticky’, exploit the strength of weak ties, and work to reach a ‘tipping point’. But last year Rayport’s message caught fire when Malcolm Gladwell’s book The Tipping Point became a best seller, provided more detailed evidence of how well and how broadly these six principles work, and gave detailed instructions on how to employ them. These two factors — the increased distrust of corporate messages and the new recipe for ‘doing’ viral marketing, are taking viral marketing mainstream — it’s no longer just a technique for those that can’t afford advertising, but a technique to replace advertising.

Using these principles isn’t difficult, risky, expensive or demanding of great patience or energy. In my earlier posts I explained that one of the biggest landmines for entrepreneurs is getting into ‘copycat’ businesses where it is next to impossible to differentiate your product or service from the next guy’s, and also explained that the innovation process starts with listening to the (current or prospective) customer. So if you’ve done your research, and you have a small group of customers who agree that your product or service is innovative — better or cheaper or faster or in some way significantly distinguishable from everyone else’s, then all you need to do is to deliver to that group of customers, and let them be your marketing team. As Gladwell’s Tipping Point describes, some of the most successful books and records, some of the most infectious ideas, and some of the fastest growing new products, like TiVo, basically found their market without a penny spent on advertising or promotion.

Let’s look at an example. I know two people who went into the same business — plastic decking products — one successfully and the other unsuccessfully. The unsuccessful guy started the business in the 1980s. He brought the technology from Europe, where it had been used in specialized military and other niche market applications, and knew that it had enormous potential in the consumer marketplace. But because he was an engineer, and more comfortable with the manufacturing process, he started with the product instead of the customer. He spent a lot of money perfecting the process and then tried to sell it to major hardware and home stores. He had no customers, no leverage to persuade the stores there was a market for the product. In fact, in those days plastic was considered a shoddy material, his product’s light weight and simple assembly was a disadvantage in the minds of the purchasing managers he spoke to. The business never got off the ground.

Now flash forward a few years. The successful guy started the business in the 1990s. He didn’t know anything about how to engineer the product. What he did know was that there was now a need. The cost of wood products was soaring. People didn’t have time to maintain wood fences any more. And there was a new scare: Creosote, the chemical mix wood was soaked in to preserve its life and reduce maintenance, was now considered a carcinogen, and was starting to be banned in children’s playgrounds, so there was a new acceptance of the newer, more durable plastics in swing sets and other outdoor furniture for children. So our successful entrepreneur brought in from Europe small quantities of a new plastic decking material, and went and visited contractors, not retail stores. He resold the material at cost to the contractors, who were able to offer it to their customers at the same price as their heavier, higher-maintenance, carcinogenic products. Not surprisingly, they were a great success. Our entrepreneur brought in some larger quantities, and began talking with the European manufacturer about setting a plant in North America. He didn’t make a single sales call — the contractors spread the word for him, among themselves, and the end-customers also showed off their slick and unique new decks to their neighbours. By the time our intrepid entrepreneur went to visit the big hardware and home stores, they had already been besieged with requests for the product and no selling effort was needed. The European manufacturer helped the entrepreneur build the North American plant, the banks, already aware of the demand for the product, offered very low-cost financing for its construction, and all the entrepreneur had to pay was a small royalty on sales to the European company.

This success is due entirely to innovation focused on recognizing and responding to a customer need, and on viral marketing. There was virtually no risk, no selling effort, and no out-of-pocket traditional marketing (advertising).

Although you can get the impression from browsing the Internet that viral marketing is a Web-based advertising process, or even that it involves mass e-mailing. This is a misrepresentation of what viral marketing, as described by Jeff Rayport and Malcolm Gladwell, is all about. It is nothing more than spreading the word about your product or service by customer word-of-mouth. Talk to the most successful contractors you know, and you’ll likely find they turn away excess business, and do no advertising or stuffing of mailboxes. Their new customers come entirely from referrals from existing satisfied customers. They do no selling and no marketing.

This brings us to the most critical precondition for successful viral marketing: Reputation. Nothing will sabotage and choke off viral marketing success faster than a sudden reputation for poor quality or poor service. If our decking entrepreneur had used poor contractors to do the work, or had failed to correct any early product quality issues quickly, he would not have succeeded.

Probably the most important of Rayport’s six principles is the fourth one: making your ‘message’ memorable and ‘sticky’. Viral marketing requires your product or service to come up in your customers’ conversations with others. That means, like TiVo, there needs to be something about it that people will want to talk about. And a picture is worth a thousand words. That’s why those amateur photos at Abu Ghraib have done so much more to turn public opinion against Bush’s war than the much more dangerous Patriot Act, the abrogation of the Geneva Conventions, and all of the other more profound but less visceral evidence of executive deceit and abuse. And why the decks set up at the home shows, and on display in your neighbour’s yard, are so much more compelling than the glossy brochures that tell you about the low maintenance and the safety of the product’s composition.