Demand-generation and the perils of 'sloppy growth'

CEOs should focus on long-term growth rather than near-term sales pipelines

The following is a contributed article by Kevin Bobowski, CMO of marketing automation firm Act-On Software


I talk to a lot of CEOs and I’ve lost count of the number who have made some variation of the comment: “Marketing isn’t driving enough leads for our sales team. And I really need a CMO to drive leads and manage our demand generation.” I’ve also lost count of the number of times I’ve discovered that driving more leads is not the problem. It’s often how the marketing department is measured and the company’s go-to-market strategy. 

Too often today, demand-gen has become synonymous with marketing when it really should be considered just one piece of marketing.


Are marketing and sales speaking the same language?

Marketing should be responsible for a pipeline commitment or a revenue commitment coming directly from marketing programs. While this may scare some marketers, it drives perfect alignment between sales and marketing. The success of sales -- and the company -- is predicated on hitting a revenue target. Marketing should be too. And in the process, the marketing department transforms into a revenue department, not a cost center. 

When marketing has a “lead commit”, there is very little alignment between sales and marketing. And if not careful, marketers can find themselves driving “sloppy growth”.


The perils of “sloppy growth”

In focusing so heavily on driving leads, these companies may be “buying” unprofitable customers. High-quality customers have strongly positive lifetime value. They renew. They offer upsell opportunities. Low-quality customers don’t last. They drain tech support and professional services. In many cases, you are getting a $1 in revenue and taking on $2 or $3 in expenses -- all without the likelihood that they will renew. 

Too many of the latter and you end up with sloppy growth. It sounds paradoxical, like “busy vacation” or “mediocre ice cream”, but sloppy growth results from an over-emphasis on converting leads and an under-emphasis on assessing how much value the customer brings to the business. In other words, quantity over quality.


But we are data-driven marketers. This shouldn’t happen…

It’s a disconnect that, ironically, comes at a time when data-driven marketing has become all the rage and is supposed to lend more precision to the marketing process. Nearly 4,000 marketing and sales technology companies now exist to help companies use data to gain insights into their marketing activities and make them more effective.

The problem is in the application of those technologies. All the buzz around data-driven marketing and demand generation has caused the C-suite to become focused on the sales funnel and not the customer experience and customer lifetime value. The CEO keeps banging the drum for more leads, rather than driving a focus on more profitable lifetime customers. Everyone in the organization thus becomes motivated to drive more leads.


Clean up sloppy growth with a sustainable go-to-market strategy

Are you targeting the right market? Targeting unprofitable customers?  Selling your product that does not solve your customer's problems? Do you have limited visibility into the lifetime value of your customers? Companies need to answer these questions rather than being so preoccupied with demand gen.

Call it your go-to-market strategy. Now obviously, demand gen is crucial. A company is only as healthy as its sales funnel. But when everything is about getting customers into the funnel rather than the quality and long-term prospects of the customer, you’ve got sloppy growth.

How can you determine earlier in the process whether a customer is high- or low-quality?

Here’s an example: Let’s say you sign up 10 customers in February. Have they been onboarded successfully? Is product usage healthy? If you see a drop-off over time, are there unique characteristics of that cohort? Look a year back or two years. You’ll quickly find what is working and what is not working.

CEOs who constantly ask whether the company has enough leads are often asking the wrong question. The right question is: Are we acquiring the right customers?