Marketing is Marketing, Finance is Finance

Oh, East is East, and West is West, and never the twain shall meet,
Till Earth and Sky stand presently at God's great Judgment Seat;
— Rudyard Kipling, "The Ballad of East and West"

Marketing and Finance are often perceived as the metaphorical East and West of Kipling’s poem, diametrical opposites destined to never meet. Marketing is creative, impassioned, and committed to developing the brand of the business. They are insistent on allocating resources and funds towards building the brand. Except, the finance team slows down the process by demanding ROI expectations and limiting budgets. So finance and marketing frequently find themselves at odds. 

Balancing the needs of finance and marketing is essential for an emerging tech services founder. In this article, we will help the founders understand the causes of the tension and how to turn these into a collaboration to help your business grow.

How Marketing Creates Financial Value

Marketing has a unique role in creating financial value in any business. According to a study by Nielsen, ongoing marketing accounts for 10-35% of a brand’s equity. In emerging tech services, the financial role of marketing becomes even more pronounced for a number of reasons.

ETS Valuations

A lot of early-stage tech services company founders often ask themselves whether their company can afford to invest in marketing. The more accurate question would be, can their company afford not to? Out of the 10 factors that feed into ETS valuations, at least 4 depend directly on marketing:

• Growth: The feather in Marketing’s cap, the growth of your emerging technology startup depends heavily on your marketing - your ability to define a target audience, reach it, and persuade it to enter a sales conversation.
• Revenue Predictability: Surprised? Don’t be. This is both obvious and easy to misunderstand. A business’s revenue prediction isn’t determined by the amount it’s already earned but by potential leads it may yet close: its bookings targets, MQL rate, its factored pipeline, and a host of other metrics that directly hinge upon the efforts of the Marketing team.
• Addressable Market: Your marketing function exists to define this market, break into it, and expand your share of it. With emerging tech services, there is also an element of nurturing to expand the addressable market itself since so many of your customers aren’t working with a well-defined problem to begin with.
• Readiness to Scale: The final peg in your ETS valuation depends on the culmination of a number of factors, including the growth of your customer base, the predictability of your revenue, and the size of your total addressable market.

Customer Acquisition

Marketing turns the flywheel that keeps revenue flowing. It’s your primary mode of acquiring new customers, now and in the future. Studies show brands that stop advertising experience 1:1 loss in sales. In the case of professional services and B2B markets, sales cycles already tend to be longer on average and declines can be particularly difficult to recover from. Continuous marketing ensures your sales pipeline remains full, which cushions you against the occasional loss and downturn. 

Premium Pricing

Studies have repeatedly demonstrated that stronger brands reduce customer sensitivity to price, which is helpful to keep in mind, given that emerging tech services startups often need to position themselves for premium pricing. By commanding above-market rates, your ETS can also generate above-average revenue and profits. That sounds great, but it starts with an investment in your marketing efforts to create a powerful and well-differentiated brand that resonates with your target audience.

How Finance Fuels Marketing

The marketing flywheel doesn’t run cheap - which is where Finance steps in. The Finance function plays a crucial role in maintaining the momentum of marketing efforts by strategically investing in them through:

Business-friendly Budgets

Marketing creates financial value, but it also consumes funds to get there. As organizations grow, they discover Marketing spending doesn’t just increase but also gets more diversified. New tools get added, and new advertising formats and channels are activated. Without careful budgeting and guardrails, this spending can eventually cause the well to run dry, making the entire Marketing machinery grind to a halt. ETS companies often operate on leaner margins than product companies, making both judicious budgeting and strategic spending survival necessities. Think of it this way: the aim of the Finance team here is not to stop the Marketing team from spending too much money on this campaign but to ensure that there are enough funds available for the next one.

Accountability

Marketing as a whole tends to be a lot more idealistic than Finance. It comes with the territory, but that doesn’t change the fact that there are business interests to answer for at the end of the day. This is where Finance plays a key role. By tracking performance and setting KPIs that ultimately tie into financial goals, Finance keeps the Marketing function accountable and keeps it focused on ensuring its efforts translate into business gains.

Long-term Thinking

Finance excels at long-term thinking. With an unwavering eye on the business’s future outlook, Finance teams are poised to back initiatives that yield bigger returns down the road. Long-term thinking powers Marketing investments in brand building, improved targeting, and increased preparation for unexpected shifts in the market.

Challenges Foster Creativity

In this thinking, we put marketing as the force trying to grow the company and finance as limiting the budgets. Much like in Kipling’s poem where the East and West will never meet. Ironically, Kipling contradicts himself in the very next lines of his poem:

But there is neither East nor West, Border, nor Breed, nor Birth,
When two strong men stand face to face, though they come from the ends of the earth

Just as Kipling acknowledges that differences don’t matter in the face of merit, Marketing and Finance functions also share a powerful common goal to drive the business forward. Marketing needs to realize that Finance doesn’t stop projects but makes them aware of the financial reality of the business. These limitations foster the creativity of the Marketing team to truly focus on the value being created by studying the ROI of their activities and creating more efficient, leaner experiments. But Finance also needs to accept that Marketing ROI is not always straightforward or simple. There will be many failed experiments and the revenue may not always be easy to allocate. In working together this way, Finance and Marketing teams create more data awareness for efficient marketing initiatives.

This also puts Finance in the role of determining the financial strategy to enable Marketing to maximize its impact and grow the business. At Vixul we strongly believe a strong financial strategy needs to underpin your marketing strategy. That’s why we’re preparing a Christmas gift for our subscribers to guide them on their financial strategy. If you want to be included in the mailing list for this gift, please subscribe below.