Should You Use Startup Capital for Marketing?
One of the largest factors that can determine a company's success or failure in the immediate future is having sufficient funding during the startup phase. Acquiring a small business loan can seem like a long and complex process, but the Small Business Administration (SBA) and other organization provide options that open new doors for startup. So, with this kind of backing, how will you best use your new financing?
Startup capital is most often used to fund the expenses that are associated with the launch of the company as well as some of the activities that are required to keep things running until it reaches the positive-cash-flow stage. In the middle of all these financial questions, one has to consider exactly when, or how much, of that startup capital should be used for marketing purposes.
Why is this even a question? Because many businesses, in their rush to get up and running, don't have a good enough marketing plan to sustain them in the long run.
It can be a little more complex than that, though. Marketing is one of those things that may or may not have a direct benefit to your bottom line. When you buy new machinery, computers, or real estate, you know exactly how that will fit into your business plan. When you set money aside for marketing, on the other hand, you're looking at a more nebulous plan that might be extremely beneficial, or it might turn out to be a waste of money. So with this kind of risk attached to it, is this something on which you should use that precious startup capital?
Have a Marketing Plan
A detailed marketing plan should be part of your startup strategy. Even before you start seeking funding, you need to know how your marketing efforts will support and promote your new product, service, or store. You need to know when you will start implementing your strategies, whether it will be online or off, and, most importantly, you need to determine the expected ROI.
If you are going to use some of your startup capital on your marketing plan, you should have a clear budget for it. This means you need to know what tactics you will use, how much those activities will cost, and how much time you will give it to generate a return before switching to a different strategy.
The key, here, is to not just throw money at advertising and other marketing practices. That won't impress your lending agent, and it won't help your new business succeed.
Marketing must be Measurable
Any marketing strategies you undertake in this initial start up phase should be 100% measureable. Chances are, unless you got a massive amount of capital funding from various sources, you won't have enough money to risk squandering it. You need to know that the money that is backing your efforts is providing enough of a return.
Online marketing is a good avenue for this type of marketing because it is so much easier to track your activities and see how customers are responding. Email campaigns are also an easy way to see how well the strategy is working. There are options for offline endeavors, too, and things like phone tracking and direct mail response can get you started. It's all about understanding how much it costs to acquire a single customer.
Is It Worth the Expense?
It can be hard to justify spending money on something that could possibly pay off compared to all those other things you feel you need to purchase - inventory, equipment, etc. However, if you are committed to long-term success, you will start to see marketing expenses as an investment rather than a cost. Your marketing will influence sales, pricing, promotions, communities, and much more. It's something you can't overlook, even in these early stages.
Will the SBA Support Your Choice?
The SBA was created to help small businesses acquire the funding they need to develop their offerings. This has led to some misconceptions over the years. For one, the SBA does not actually provide any money for the business. It simply guarantees a certain amount of the money so the lenders will be more likely to provide your financing. For another, it can be difficult to work with any government agency so many lending institutions prefer not to do so. Neither of these things should impact your decision to use startup funding for your marketing programs.
If one SBA lender tells you that they don't want you using the money for marketing - only for operating expenses or whatever else - that doesn't mean the SBA is against the idea. It only means that this particular lender has some specific rules attached to their loans. If your marketing plan is an intrinsic part of your startup (and it should be), take the time to shop around and find the SBA lender who will support your entire business strategy.
Sean Makulowich is the Social Media Manager at RapidAdvance, a leading alternative financing firm in Bethesda, MD. Sean is a passionate and creative entrepreneur with extensive expertise in all areas of social media, online marketing and branding. He is a sociable and outgoing tech-savvy geek with a lust for technology, an eye for design and a bright, bold vision of the perfect customer service and user experience. Connect with Sean on Google+