Sustaining a Brand Conversation: To Strategize, or not to Strategize, about Social Media? A Note to Brand Marketers

Why should you care about the Social Media industry beyond what you are doing in it? Why should you care about how it evolves?

You care about sustaining a Customer Centric Conversation with your customer. That's why.

You are already a step ahead of the competition if you are asking these questions.

Some might question why we need to think about market structures, channels, consumer behavior, and returns on investment in the Social Media industry. Fair enough. There is enough activity in the hyper-competitive Social Media market right now for folks to dive in and get a lot of the work done quickly in funky, interesting ways, while helping the market evolve as a byproduct. We could even discount research that discounts first mover advantage.

Recently, Facebook surged past MySpace in Monthly Unique Visitors. If that news made you wonder how you are impacted, or how your company's busy work in Social Media is impacted, you are asking the right questions.

If You want to sustain a conversation with your customer, without being distracted by the ebb and flow of the social media buzz around you, you know you want to tie in your social media tactics with strategic market insights.

Instead of steps that assist your journey toward an effective social media presence, your search leads you to information on how to get things done. Lets change that. Right here. Right now.

Here are four thought enablers that help you cut through the clutter to formulate a social media strategy.

The Interplay between Marketing and Social Media:

1. Marketing is currently following Social Media: What we define as conversational marketing right now, is just marketing catching up with social media. Social media can be abstracted as a process of developing new channels of communication. How you leverage these channels is driven by your brand. Marketing in these channels will mature when brands begin to consistently leverage the innovation in channels for improved resonance.

2. Marketing Future 2.0 goes beyond Web 2.0: Marketing has a few steps to take before it truly takes off, and leaves social media behind to become a platform. I will hold on my vision for marketing here.

3. The Social Media Industry is a Market: Social media will become a platform and will have a few dominant players like platform markets do. However, the innovation game is not over yet. While some players have taken an early lead and have shown the legs to innovate, social media tools have not reached a communication channel innovation plateau yet.

4. Value: Value, value, value! How do we justify social media spend to a corporate? How do we tie it into the brands, say, in terms of a Brand Equity Pyramid? This is the outcome of some ruminating on my previous blog here: http://randomjunkyramblings.blogspot.com/2009/06/brands-economics-blink-twitter-facebook.html

Needless to say, the note assumes that you already are pursuing social media opportunities for your brand. If you do not have your feet wet yet, you are welcome to read some of my previous posts below for some ideas- I would heartily welcome a conversation on those points of view.

http://randomjunkyramblings.blogspot.com/2009/06/economics-brands-blink-twitter-facebook.html

This loops us back to the next post that started this train of thought, proving that Execution -> Metrics -> Strategy are not linear, but form a circular reference, and spiral into greater maturity as the industry matures. Therein lies the risk and the reward.

While I am at it, here's a blatant plug: please feel free to contact me for more! You know how to find me.

Psst... Watch out for my Twitter game- BigBirdBots!

--

Panel: Creating Value through Operational Improvements

The panel discussion kick-off reminded me of a simple brand equity value chain, noted below in a slightly modified manner: look at the market for size and value, and work your way inward into the organization into the capital structure, evaluating improvements at each step.

To tackle the question of creating value in the current economic context, the panelists considered various tactics like evaluating the purchasing power of the customer, to benchmarking various activities of the organization. This can lead to evaluating options like changes to distribution strategy, or even product rationalization.

A Managing Director at Fenway Partners, who has been through the 2001-02 downturn, pointed out that you may save capital, but you are then faced with the challenge of deploying it.

He ventured three capital deployment options- buy debt at a discount, invest in organic growth by looking at operational investments, and invest in equity acquisitions. Investcorp’s analysis on operational improvements making an impact on exit multiples/ firm value fits into this decision making process.

Some questions I considered coming out of the panel:
Growth: Depending on the nature of the industry, and the cash at hand, what would encourage companies to pursue market share growth as a strategy? How are companies allocating resources to strategies that have a longer incubation time for results?
Risk Taking: How are companies deciding on change management risks in the current economic context?
Know Thy Customer: Given that customer segmentation is expected to lead to actionable marketing activities, how would it change in the changed economic context? While investing in understanding the customer may take a hit, how are companies evaluating situations where cutbacks here will hurt more than add value?

One Chart, One Slide to Show It All
Taking these questions and thoughts further, you really come to a simple X-Y bubble chart that lists points in the company’s value chain starting from financing to customer touch points on one scale, and profitability of investments on another, with bubble size being a function of risk.

Corporate Finance: A Decision Making Template
The decision making template behind this evaluation process could be:
1. What is the customer impact? One parameter to consider could be- would this improve customer “stick”? This helps evaluate customer acquistion programs, given that margins are under pressure and most companies are looking to increase volumes.
2. Do we have cash for change?
3. What is the profitability *profile* of each investment? E.g. Do certain improvements investments have "long tail" returns?
4. What is the exit strategy for this change project?


What do you think?


The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Private Equity Case: Dialogic Carve Out from Intel

Given my own experience with a Citigroup company that underwent a carve-out and an acquisition, I was looking forward to insights from this panel of heavyweights.

The Investment Rationale, Diligence and Terms
The comprehensive discussion started off by covering the rationale for a carve-out. One could be the impact of the technology inflexion curve, which forces revenue contraction. The challenges lie in the due diligence- the new entity requires an operating infrastructure to be built around the business- and venture capital like agreements on the term sheet conditions around downside protection- like redemption rights. Factors like restructuring management also need to be considered as they impact investment risk. In the Intel- Dialogic deal, intellectual property discussions were also critical.

Exit Strategy
Given this context, the exit strategy pitch to the investment committee is also critical. The right expectations need to be set, from whom to sell to- IPO vs. general sale- to sale value. This is especially important when the investor would like flexibility on freeing up cash if necessary.

This raises interesting investing questions:
1> Investment Failure Rates
There are various ways to slice and dice the investment portfolio: have firms considered “failure” rates of different types of deals, e.g. a carve out vs. a public company acquisition, as a factor in their decision making?

2> Portfolio Synergies
Do investment committees consider synergies across their investment portfolio as a factor in deal making? If so, what kind of policy should govern such a process? Note: Dealmakers sometime tend to think of synergy as finding efficiencies by acquiring competitors and consolidating market share. There is more to synergies- it pays to think like an investment professional here.


What do you think?


The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Panel: Venture Capital: “If it ain’t broke…” Does the VC Model Need Fixing?

The discussion focused on the parameters within which the VC industry currently operates

A return to fundamentals
The discussion kicked off with a return to fundamentals:
1> Most venture capital firms are not setup to make small investments
2> Venture capital firms are more like asset managers
3> Deal making is not easy: A deal like that of EqualLogic was hard work for all parties involved
4> The venture capital business is fundamentally not about fundamental research for revolutionary technologies, but about applying technology
5> Depending on the industry, the average holding period can be up to 9 years
6> As the market for the pre-IPO company matures, it should grow larger, providing the opportunity for late stage venture capital firms.
7> Exit strategies are critical to the model. Is there a vibrant IPO market? Are there private company sales opportunities?

Investing during the economic downturn
The panelist opinion was that the quality of business plans and management teams gets better as the economy goes down. The panelists emphasized that they are being extremely selective; they are not into throwing 50 bets at the solar power industry.

A panelist pointed out that the CEOs of their portfolio firms were upset by the Sequoia deck. The economic downturn, though, has led them to revisit their breakeven analysis.

Economic cycles and the industry- a perspective
A panelist had an interesting perspective on the economic downturn- the VC firm sells a company to Microsoft in the good times -> Microsoft cuts products and jobs in the bad times -> the resources are back in the VC fold working on the next product.

Venture Capital Fund Management
Funds are structured as financial managers who can find good business managers, as opposed to operational managers making funding decisions.

In January 2009, Kleiner Perkins, raised a so-called “annex fund,” or reserve fund it can tap to support companies it has already backed to help ensure they get through the downturn.
http://venturebeat.com/2009/01/14/kleiner-perkins-forced-to-reach-out-to-new-investors-unheard-of/

Outside of the one off hits, a panelist pointed out that returns in the 4x range would be rare in exits. Valuations were down 50%, B and C round valuations were down 20% and 30 % respectively. Another panelist stated that the venture capital industry was saved from a sever flight of capital by the buyout collapse.

Some the questions that arise:
1. Do lower valuations imply a longer time to complete transactions, and require a better understanding of the potential investment’s core business?
2. Would there be a shakeout in the industry that favors more late stage firms that have strong networks with large, potentially private companies? Would the shakeout lead to a reduction of the number of multistage firms?
3. Would late stage venture capital firms resort to private investment in public equity (small cap companies)? Even at the risk of serious strategy drift?
4. Given the odds of hitting the ball out of the ballpark (and I am not even talking about the odds of innovation), how should a venture capital firm get more selective?
5. Given the context of the Kleiner Perkins Annex fund, would a fund consider trading extensively in a secondary private market only when it is considering liquidating? Would partial portfolio/ strip sales be a serious option? Would some sort of a CDO like market structure be useful in the venture capital industry?
6. How are funds helping the LPs? Is it just via managing the drawdowns?
7. Are more LPs checking on estimates on deal flow and deal sizes to assess the impact of the economic downturn?
8. Are investment charters of old portfolios being modified to provide more flexibility to the venture capital firms?
9. How frequently are LPs assessing their asset allocations strategies and communicating with funds to execute revisions?

What do you think?


The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.