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Columbus Had a Pro Forma

2013 May 22
by Russ Somers
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I was impressed with Ryan McLaughlin’s post “Get Executive Management to Approve Anything.” It fits with an approach I’ve used successfully, although Ryan’s framework is better articulated and more complete. But, as @b2bcommunicate thoughtfully pointed out in a conversation on Twitter, “Why would a data-driven marketer recommend spending even 1% of budget on activities with no ROI data?” (Rebekah, I’ve pulled the Twitter abbreviations out, but I think my paraphrase captures the gist of it.) It’s a great question given that we digital marketers build everything we do on data.

Here’s what’s worth remembering: for a new initiative, you will by definition have no ROI data. When Columbus set out for the new world he had not quantified the opportunity of discovering America (as that was not his intent). He had to sell the idea of a westward voyage, though. He pitched like an entrepreneur pitching to venture capitalists. “We know the Silk Road to Asia has become more difficult and expensive since the fall of Constantinople. We’ll innovate and disrupt the Silk Road by sailing west. If we capture even 5% of the market, we’ll be rich. Here’s a sensitivity analysis along with a list of our angel investors and advisors, as well as management team bios showing a solid track record.” In short, Columbus had a business case – and a pro forma P&L based on a set of assumptions. He pitched in Portugal, Genoa and Venice. His brother Bartholomew pitched in England. He pitched a lot before he got financing from Ferdinand and Isabella.

And then those assumptions turned out to be wrong. Some of it was bad math about the Earth’s circumference, but the big deal was an inconveniently placed continent. Did that mean the mission was a bust?

No, it just means the pro forma ROI calculation was off. Way off. Discovering a route to a new continent is a whole different kind of R than Columbus expected. (And I know the Vikings were the first to leave a comment on the YouTube video of the New World, but my point stands).

What’s the point of this ramble? Simple: if you ONLY invest in initiatives where you have proven ROI data, you’ll NEVER invest in anything new. You’ll never discover America. You’ll be the hundredth company to take its business online, not the first (there was a time when “we have to have an online presence” was not a foregone conclusion). You’ll be the last in Social and you’ll still be running tweets through Legal while others are building a business there. You’ll be one of the many marketers acting out of Fear Of Being Last instead of out of Hope Of Being First. There is a safe place back in Spain for such marketers. But they’ll get even less ink in the history books than Bartholomew Columbus did. (He got a solid equity stake for his bus dev work, though).

Data-driven marketing is rarely wrong. But it is backwards-looking. And on the rare occasions where it’s wrong, you print “Dewey Defeats Truman.”

So what does all this mean for Ryan, Rebekah, and the rest of us? A few things:

  • Follow Ryan’s advice on balancing your portfolio of initiatives. Just like your investment portfolio, your portfolio of Marketing initiatives should be mostly boring bonds and blue-chip programs that have solidly proven ROI
  • Allocate some spend to deserving new programs so that you can keep up with – or get ahead of – competitors who are innovating. Make those programs prove that they are worth investing in by building pro forma ROI models. That’s a big part of selling them to others anyway – “Here’s what we’re trying, and here’s what we expect”
  • Examine new initiative ROI, once launched, against the expected ROI. “The Columbus initiative didn’t deliver the expected Silk Road ROI. However, it had some unexpected benefits. Here’s the data, let’s quantify the benefit and see if the return is above or below what we modeled.” If above, invest more. If below, cancel the program
  • Examine existing initiatives just as rigorously on a regular basis. If an existing initiative delivers solid but unspectacular ROI, you might pull funding from that bucket to invest in that New World thing that just proved a higher return, for example. Delivering positive ROI is not enough to justify continuance. The question is, does your mix of marketing programs deliver the highest possible ROI?
  • Structure your organization so that those decisions are not made in a vaccuum. For my team, it’s a monthly Marketing Operations meeting, where new and existing initiatives are reviewed. (Marketing team presents the data, executive team is on hand to weigh in on investment/re-allocation decisions)

Every solidly proven, high-ROI staple in your portfolio was once an unknown quantity. If you never make a decision without data, you’ll never do anything new. Balance. Build your organization’s marketing mix on proven performers. Experiment with new ones, but model what you expect them to deliver and measure against that. Sometimes you’ll fail. Sometimes you’ll succeed. And every so often, as with Columbus and the first online and social marketing pioneers, you’ll find a whole new world.