GGV Capital, Max Ventures, and Citi recently hosted our 2nd annual CMO dinner that included 15 of the top CMOs in NYC. Thank you to our guests from Spotify, Poshmark, Gap, Shake Shack, Michael Kors, Peloton, K Health, Knock, Top Golf, Function of Beauty and several others for sharing your perspectives around tough decisions you face as CMOs such as resource allocation, structuring internal incentives so everyone is motivated to work together, current state of different advertising channels/methods, etc. We’ve highlighted a few of the key insights from the dinner below.

(1) Global expansion — stay true to the message and values. Several CMOs in the room have led marketing for consumer companies that have expanded across borders. In their experience, it’s critical to keep the core message and values in tact when expanding into a new country, but the tactics of how you reach the consumer will differ by country. Companies are successful because they create value in a consumer’s life and have a message that communicates that value. It’s always important to localize for the market, but don’t change the core message and values that led the company to be successful in the first place. Instead, focus energy on best channels and context to deliver the message to the local consumer in the new market.

(2) The strongest communities are a result of a great product. It’s well understood in marketing circles that creating strong community within your customer base strengthens your brand with those consumers. As a result, early-stage companies invest resources very early in a company’s life to build community (often before the product is widely adopted).

But, when hearing from marketing executives at companies who have built strong online communities, it’s often a result of users kickstarting the community themselves on different channels without the company’s help. For example, Peloton has one of the most robust online communities via Facebook groups, but they put zero effort in starting it. Users who loved the product set up the online communities and initially grew it independently of Peloton.

Focusing on building community early in a company’s life can be a waste of resources if an early engaged user base who already wants to talk about your product hasn’t emerged. The best approach might be to monitor online activity of users and if community starts to build (which will be a result of delivering an amazing product/experience) then find ways to facilitate and spread its manifestation.

(3) Utilize TV ads earlier, especially if you’re the first mover in a category. The general thought for a VC-backed company is to continue acquiring users on performance channels until you’ve reached scale then start experimenting with more traditional brand marketing channels such as TV. But, if you’re the first mover in a category, then spending more aggressively on channels like TV can provide a bigger tailwind as you expand. Even if you’re not in the core demo or market yet, it educates the consumer on a new category that’s interesting and they will immediately associate your company with that category. (there is an advantage of being first, theory of primacy)

For example, one of the CMOs at dinner was previously at one of the first online food delivery companies. The company benefitted from buying TV ads early on and educating users about their product. It paid off even if they weren’t in the markets yet, because the product was already more familiar to users once they entered.

The most valuable consumer companies build a brand that is synonymous with a category and spending early on brand channels like TV push towards that goal.

(4) The most effective UGC (user generated content) shows an emotional connection with the product and end user. BarkBox created a large and engaged social media following who loved their pets and also enjoyed watching entertaining content with dogs. Over time, BarkBox realized that content generated by users that showed dogs having a fun experience with BarkBox products were most likely to convert to new BarkBox subscribers. For example, one of the most popular videos was a dog who runs to the road to meet the mailman, jumps in the back of the mail truck and pulls out the BarkBox package. The dog is running around the yard with the BarkBox package it its mouth, extremely happy and eager to tear it open and see what’s inside. It’s easy to see why a pet owner would want to subscribe to BarkBox and create that same joy for their dog after seeing that video.

(5) Pay attention to how users get the most value out of your product so you can lean into it. For example, Top Golf started as a cool driving range where you could better track your golf shots while enjoying a beer. The marketing team quickly realized that ~60% of customers were non-golfers and they were playing for entertainment with groups of friends rather than working on their golf game. The company evolved into a brand and community where non-serious golfers could gather and have fun over food, drinks, etc., (50% of revenue is from food & beverage), which is much more valuable than a driving range and real estate play.

The marketing team has done a great job over the last decade. Once they understood their super fans were a result of having an amazing experience with friends, they built the right messaging around it and the result is a rabid fan base who have become evangelists.

About the Cohosts:

Evolving E originally started as a conference in New York City for the top entrepreneurs and executives in digital commerce, retail, and consumer goods sectors. Since the initial summit in the spring of 2016, it has grown to include events in multiple cities and a community with members from around the world.

GGV Capital is a global venture capital firm that invest in local founders. As a multi-stage, sector-focused firm, GGV focuses on seed to growth-stage investments across Consumer/New Retail, Social/Digital & Internet, Enterprise/Cloud, and Frontier Tech sectors. The firm was founded in 2000 and manages $6.2 billion in capital across 13 funds. The firm has office in Beijing, San Francisco, Shanghai, and Silicon Valley.

Max Ventures is one of the most active seed stage funds based in New York City. Max has a strong consumer tech focus with investments in rapidly growing commerce companies in NYC, San Francisco, and the Nordics. Within digital commerce, the firm will invest in direct to consumer and B2B software. The partners have over a decade of experience in investing in early-stage companies across the globe.

(1) Finding the right balance between Brand Marketing and Performance Marketing is very difficult. In the short-term, a company is incentivized to over-emphasize performance marketing channels (FaceBook and Google) because there’s an immediate result and measurable ROI. But really good brand marketing campaigns are likely to have a bigger long-term pay off, but results are further out and harder to measure. What’s becoming even more difficult is establishing an incentive structure so your brand marketing and performance marketing teams don’t feel like they’re competing against each other for resources.

One of the guests — a CMO of a company that is about to go public — has faced this problem for years and has found an approach that’s working. As the brand expands and revenue increases the company has decided to give the performance marketing team a higher budget. Direct profits from performance marketing campaigns then get funneled back into the brand marketing team’s budget. Both teams are incentivized to work together and each team is rewarded when the other team executes. Internal incentives are aligned and resources are expanded based on production of both units.

(2) One of the most consistent flaws when a CMO hires marketing talent is not being specific on expectations. It seems like an obvious problem, but *every* person at dinner said they’ve directly or indirectly experienced the problem at least once. Marketing is often viewed as subjective and trying to make an impact as a new employee can be even more complicated at a founder led company because so much of the brand is directly tied to the founders. It’s critical to clearly set expectations and establish why the new employee is joining, set metrics that measure the employee’s success, establish a 100 day execution plan, among other things. There should be no uncertainty on what success looks like.

(3) Don’t move out of core markets/demographics too early. It’s very common and intuitive to feel urgency to be one step ahead of expanding your demographic or product categories. But, the reality is the company has to reallocate resources to execute it. If your company is performing extremely well within your core demo, then keep spending resources there and ride it as long and hard as possible. It might take you much farther than expected. Ride the core demo until it starts to become clear you need to spend resources elsewhere.

(4) Marketers need to have a deep understanding of their core audience. Again, sounds obvious, but too often the marketing team doesn’t fully understand or represent their entire core audience. It can be especially true as a company expands past the early adopter segment. For example, one of the companies at dinner ran an ad campaign about a specific topic that inadvertently offended a portion of their user base. It’s a big company that has been very successful, but the blindspot on the topic made it clear they needed to be closer to all of the customers. Marketers need to understand their customer’s values, biases, frameworks for making decisions, etc. One of the CMOs at dinner makes a point to schedule a call with at least one random customer per week to ensure they are staying close to all users.

(5) Brands are increasing focus on physical stores as pure branding initiatives. Especially in markets like NYC & London where people from all over the world visit and end up walking into their store. It’s imperative for the in-store experience to be fun and allow people to experience your brand in a memorable way. Don’t always view the physical retail experience as transactional because it should also be an amazing brand marketing opportunity.

Marketing is a critical function for all companies that’s becoming even more important as access to the consumer becomes democratized. It’s never been easier for a brand to reach consumers, but it’s never been more difficult to stand out. It’s imperative to deeply understand your customer base, their values, how they spend their time & money, what message resonates, and how to convey that message in a timely manner.

About the Cohosts:
GGV Capital is a venture firm based in Silicon Valley, Shanghai, and Beijing that has been partnering with leading technology entrepreneurs for the last 18 years. With $3.8B in capital under management across 8 funds, GGV invests in globally minded entrepreneurs in consumer/ecommerce, frontier tech, and enterprise sectors.

Max Ventures is a seed stage focused VC firm that is based in NYC. The firm has a strong consumer tech focus with investments in rapidly growing commerce companies in New York City, San Francisco, and Los Angeles. The partners have a decade of successfully investing early stage companies across the globe. Max Ventures primarily invests in Digital Commerce, Digital Media, Fintech, and Digital Health.

1. User Experience drives loyalty. Ease of purchase, prompt customer service, easy re-ordering, an ongoing communication strategy that’s informative and not annoying are qualities beyond the product or service being purchased that makes someone become a super fan.
2. Establishing an emotional connection during the initial purchase matters. Brands are thinking deeply about creating a positive emotional experience for customers during the initial purchase. It usually takes several purchases for a person to turn into a loyal super fan. Repeat customers are earned when brands go above and beyond at the time of initial purchase.
3. User-Generated Content of loyal customers interacting with the product and brand performs much better than any performance marketing campaign. What makes you want to purchase a product? A video of someone having an amazing experience with a brand they love or a Facebook ad? For example, a video of a dog getting super excited about a package that’s being delivered from a company that sells dog treats or seeing a group of people genuinely bonding at a cookout while enjoying a food brand they all adore. It’s aspirational. If potential users see others having a positive experience with your product, they’re much more likely to buy it. The content has to be genuine, but it’s likely the best performing promotional content.
4. Engaging users at a key moment and making them feel like you genuinely care builds loyalty. How do you feel when someone reaches out to you on your birthday or another specific event and acknowledges it? It makes you feel good…that person took the time to think of you. Brands are trying to do the same thing. Examples are monitoring facebook groups and reaching out directly to the individual when something important surfaces, a Peloton instructor congratulating you on your 100th ride even though there are 10k people in the same class, or going above and beyond when a user has a negative experience to make sure they’re happy. Recognizing and acknowledging key moments for an individual consumer builds long-term loyalty.
5. Long-term Loyalty vs Transactional Loyalty: the best analogy is comparing brand marketing to performance marketing. Quite often companies are incentivized to direct resources towards performance marketing channels because it produces immediate results that are easy to measure. However, executing on brand marketing is a much more valuable investment, but it’s more challenging to justify because it’s hard to measure and the immediate ROI is uncertain. Marketers are starting to think about loyalty the same way. Sure, transactional points programs are easy to measure and create lock-in, but there are additional ways to improve long-term loyalty, which drives much greater enterprise value over time. It’s a combination of several things previously mentioned with the understanding that it might be difficult to measure ROI in the short-term and will require a long-term commitment. But, the long-term payoff of a loyal customer is well worth the investment.

Every organization is thinking deeply about loyalty, which is evidenced by the people who hold “loyalty” titles. We believe long-term loyalty is a combination of creating an amazing end to end user experience, making the person feel special & recognized as an individual, and providing access to something that’s valuable to the user.

About the Cohosts:
GGV Capital is a venture firm based in Silicon Valley, Shanghai, and Beijing that has been partnering with leading technology entrepreneurs for the last 17 years. With $3.8B in capital under management across 8 funds, GGV invests in globally minded entrepreneurs in consumer/ecommerce, frontier tech, and enterprise sectors.

Max Ventures is a seed stage focused VC firm that is based in NYC. The firm has a strong consumer tech focus with investments in rapidly growing commerce companies in New York City, San Francisco, and Los Angeles. The partners have a decade of successfully investing early stage companies across the globe. Max Ventures primarily invests in Digital Commerce, Digital Media, Fintech, and Digital Health.

Success in early-stage investing is primarily driven by 1. Access to the best Entrepreneurs; 2. Being able to select the best companies to invest in based on your access; and 3. Adding value post-investment, which also fuels #1 since Founders who you previously backed are often the best source of deal flow. If you have access, then you’re flooded with opportunities right now. Time is finite, and it’s impossible to dig into every investment you come across. Therefore, an early-stage investor has to be prepared to recognize a talented Entrepreneur, who is uniquely positioned to build a successful company on a business idea that might not be obvious.

Access to high-quality deal flow is essential and puts opportunities under your nose, but I *think* a prepared mind is what makes an early-stage investor great. Chance favors the prepared mind.

What can you do to be more prepared to recognize unique opportunities? Here’s a few things that I do, some obvious, some not. I’m not sure if it’s the best approach, but I make a point to do a few things that are unconventional. Hopefully, it will position me to recognize a unique opportunity. Or, maybe I’ll just have fun doing them. Reading blogs, news articles and listening to podcasts that are focused on tech aren’t included.

Read, Read; Read!

Read Fiction books that take place in the future. Books such as Ready Player One or AI Apocalypse can fill your head with thoughts about how the future will *potentially* unfold, even if they are a little far out. The point is to open up your mind to what the future might look like as technology advances. For example, the Chief Product Officer at Facebook who introduced the silent autoplay feature for videos in your Newsfeed was inspired by the Harry Potter books/movies. The idea came from the Newspaper (Daily Prophet) that was animated and full of looping movement.

Read Long-form articles about various topics: Pick a random topic and spend 20–30 minutes reading about it. I also enjoy listening to podcasts such as NPR’s Fresh Air that features experts that go into detail on specific topics. The topic can be anything: how music is created, photography, mental illness, education, gambling, the inefficiencies of our prison system, how the brain functions, sports, etc., etc. The point is the more you know about the world (what’s great about it and what needs improvement) the better prepared you’ll be to recognize opportunities.

Read Biographies of successful people and learn about the common tendencies and personality traits of successful entrepreneurs.

Speak to other people in creative fields that make similar decisions. When I say similar decisions, I mean a person who sees a lot of opportunities and has to select (or invest) in very few of them without a lot of data. Speak to someone at a music label who looks for emerging musicians or someone who invests in emerging artists (painters, sculptors, etc.) These types of people make bets on individuals through a selection process that is more of an art than science. There might be a parallel.

Be aware of every user experience that you encounter. It can be as minor as the street vendor who sells you a bottled water in Central Park or as major as receiving bad news at a hospital. How is each experience designed and what level of service made you feel satisfied? Start to recognize what separates the good from the bad based on the situation.

Constantly talk to operators and try to get beyond the surface. This seems obvious, but everyone doesn’t dig in and find out the most important info. Try to figure out how they are overcoming challenges, the tailwinds that created the opportunity, and sometimes most importantly — the constraints they are facing. The best info is in the minds of the employees. Collect as many data points as possible.

Speak to public market analysts who cover industries that are relevant to your investment thesis. I always find these conversations valuable, even though their evaluation process is different. Public market analysts have a good sense of the strategic direction of the companies they cover, which can lead to future M&A. They can also help you understand where these companies might be vulnerable, i.e., where outsized profit pools intersect with a poor user experience.

Read annual reports of businesses that operate in relevant industries. Similar to speaking with analysts, you will get clues about where large companies see opportunities and where they might be vulnerable.

The most interesting talking points on later stage rounds with high valuations were (1) how they are being structured, (2) the mindset of investors leading the rounds.

Late-stage investors are trying to structure these rounds so they are the first money out in a downside scenario. If the current Enterprise Value of the company is greater than the preference stack (total amount raised in preferred shares), the initial investment is being viewed as risk-free, which is a dangerous assumption. Investors are willing to pay high valuations because the investment assumes zero downside with upside potential. It’s almost like an arbitrage currency trade that a hedge fund manager will put in place.

An extremely low (almost negative) cost of capital is the primary culprit. In a downside scenario the investor assumes the entire initial investment will be returned, which is not that bad of an outcome when the current risk-free rate is essentially zero. The cost of parking your capital in an investment that produces zero yield isn’t that much different than buying low-risk bonds. If an investment at this stage doubles or triples then it’s a win.

Potential recaps, where late-stage investors lose preferences, could lead to late-stage investors getting burned. The majority of unicorns that have raised over $100M are burning money at a very high rate and are dependent on external funding. When they go out to raise the next round, a new investor will see $100M — $1B in preferences and demand a recap in order to finance the new investment. A recap will most likely negate the previous investor’s liquidation preference and put the initial investment, which initially seemed risk-free, at risk. Once this begins to happen, absurd late-stage valuations should begin to decline since there will be an increased amount of risk to the capital being invested.

Other factors that are more obvious include disappointing IPOs and macroeconomic factors that are difficult to predict. Rationally speaking, late-stage valuations are bound to pull back at some point.