From the September 1998 issue of Entrepreneur

In the 1992 movie "The Player," cynical movie executive Griffin Mill dismisses a script with the comment, "It lacked certain elements that we need to market a film successfully."

Marketing experts might say the same about the marketing approach taken by most entrepreneurs. According to a recent study by international business information provider Dun & Bradstreet (D&B), the typical entrepreneur is little more than primitive when it comes to marketing. (For details about how the survey was conducted, see "By The Numbers" on page 143.)

The survey found few small businesses use formal marketing tools to identify new opportunities. Only about half prequalify customers and prospects. Word-of-mouth marketing and referrals remain their primary marketing means, while, for the most part, they spurn the use of unsolicited e-mail and marketing through Web sites. Generally, their sales approach is to react to customer inquiries rather than to proactively reach out to prospects. And only about one in five small businesses strategically plans how to market its products and services.

And entrepreneurs aren't arguing with the survey. "I'm still one of the yahoos," says Robert Stephens, founder of The Geek Squad, an 18-employee computer repair firm in Minneapolis. Stephens, 29, rarely purchases market research, qualifies customers as "anyone who has a computer problem" and relies on word-of-mouth marketing for more than half his sales.

Survey Says . . .

The survey findings dismay but do not surprise marketing professionals who work with small businesses. "I definitely think it's on the money," says Joyce Gioia, president of Greensboro, North Carolina, management and marketing consulting firm The Herman Group.

On the other hand, one of the problems the survey highlighted is that small businesses pursue too many opportunities. "When your resources are limited, you need to develop a more targeted approach," advises David Urban, associate professor of marketing at Virginia Commonwealth University in Richmond.

The survey also turned up the fact that few small businesses systematically recruit effective salespeople, and many fail to provide more than in-house training to those they hire. That's even more serious, says R. Keith Tudor, associate professor of marketing at Kennesaw State University in Georgia. "Sales is the most important part of a business," says Tudor. "Without sales, there is no business. So you've got to hire good salespeople, take care of them and train them properly."

So why aren't small-business owners better marketers? Entrepreneurs know the answer. "It's too expensive," says Stephens, who describes his marketing resources as "almost 100 percent inspiration."

Experts agree that small firms lack not only the dollars but also the hours and know-how to improve their marketing efforts. "It's time and money that prevent them," says William F. Doescher, senior vice president of D&B. "Plus, they don't know how to do it and they don't know where to go to find out how to do it."

Survey results indicate that sophisticated marketing efforts correlate with company size. The survey showed a particularly big change at 25 employees, with larger firms using advanced techniques and smaller companies relying on relatively rudimentary tools.

These facts don't excuse entrepreneurs' marketing weaknesses, argues Urban. "A lot of marketing ideas are fairly simple," he says. "In many cases, small-business owners just need [a few classes] to bring them up to speed."

Customer Focus

If you use formal techniques such as market research and market-share analysis to identify new markets, you're in the minority among small-business owners. That's because the most common techniques are the relatively basic ones: defining a market (49 percent) and identifying prospects by assessing products (42 percent).

Is that a problem? Perhaps not. "[Small-business owners'] markets are usually well-defined," says Gioia. "The question is, How do you communicate with that market so they'll want to buy from you?"

According to Gioia, small businesses that want to identify their target markets should focus on the attitudes of existing customers. "Talk to them and ask them what's most important to them," she says. "Make sure you have your finger on the pulse of what your customers value."

Many small businesses, such as Washington, DC-based Temps & Co., are already one step ahead of the game. The employment services firm founded by CEO Steve Ettridge in 1981 routinely polls existing customers, as well as past prospects who chose competitors, to identify new needs and see how well Temps is serving them. "We're customer-driven," explains Ettridge. "We find out what people want, and we deliver it."

Overall, small businesses do a poor job prequalifying clients, according to the survey. Only about half make sure they market only to people who are willing and able to buy. Of the entrepreneurs that do, 16 percent rely on credit reports, 12 percent use estimates of a prospect's sales potential, 8 percent consider demographic variables and 7 percent use other prequalification methods.

That's not a good sign, says Doescher. "They forget the rule that says they should [cultivate past] customers," he says. "That's the best place to find new business."

You can do a better job of prequalifying by paying close attention to your marketing costs and determining what it costs you to market to a poor prospect. "You don't want to pay $10,000 for something when you don't know if it's going to work," says Gioia, who recommends test-marketing as a relatively inexpensive and focused way to prequalify prospects and measure the effectiveness of your marketing materials.

Marketing Means

The "big three" small-business marketing channels are referrals, advertising and direct mail. Referrals and advertising are used by about half the companies surveyed, while direct mail is used by only one in four. Just 1 percent admitted to using controversial unsolicited e-mail--also known as "spam"--to market goods and services.

Doescher applauds the spam aversion but is less complimentary about the fact that only 8 percent of surveyed firms said they marketed through a Web site. "It's not that expensive, and a Web site brings in business," he says, a stance supported by the marketing experts.

Ettridge, however, disagrees with the experts on this point. His firm has an extranet (a restricted Web site for existing customers) and doesn't market through a public site. Firms that do, he feels, give away so much information about service offerings, pricing and even customers that their Web sites are often free lunch for rivals gathering competitive intelligence. "We get prospects from the Web," he says. "We don't give them."

Don't Just Sit There!

One of the most damaging failings identified by D&B's survey is the tendency of small businesses to react to incoming orders instead of proactively seeking them out. Small businesses are so passive, in fact, that walk-in retail traffic was the most popular sales method, cited by 44 percent. Next were telephone sales, used by 22 percent, and field sales, used by 18 percent.

Small-business owners may feel they're too busy putting out fires to be proactive, Doescher speculates. In fact, survey findings indicate that competitors, tight budgets and the difficulty of getting noticed by customers were cited as the biggest obstacles to proactive marketing.

Not all small businesses take a passive approach, however. Gordon Weinberger, founder and president of Top of the Tree Baking Co. in Londonderry, New Hampshire, spends most of his time traveling throughout New England in a wildly painted school bus promoting his fruit pies. He can often be found outside grocery stores, in mall parking lots or anywhere else people will gather to gawk at an oddly dressed six-foot-nine-inch entrepreneur imploring them to "Eat mo' pie!"

"We're extremely proactive," says Weinberger, 33. He's even gone so far as to organize letter-writing campaigns by consumers urging local grocers to carry his pies. And his efforts are working: The 10-employee company, near failure in early 1997, rocketed to profitability by year-end to the tune of $3 million in annual sales, largely because of Weinberger's manic marketing.

It seems that small businesses fall short of almost every marketing ideal, from seeking international business (13 percent) and creating strategic marketing plans (21 percent) to providing outside training or compensating sales people. Still, some small-business marketing practices are on the mark.

Small-business standbys such as referrals and word-of-mouth, for instance, were named by many survey respondents as some of the most economical, effective marketing tools. In-house sales training can also be both effective and inexpensive, adds Tudor. And nearly two out of three small businesses surveyed measure customer satisfaction--another smart move.

Meanwhile, Weinberger says he's running his marketing effort like a "pie-litical campaign," complete with grass-roots efforts and lots of photo opportunities with the media. "We even have ambassadors who are in the supermarkets promoting our products."

Eye to the Future

Fortunately for entrepreneurs, the future may hold better news for improved marketing efforts. Tudor says many small-business owners he works with exhibit more sophistication over time. He says many entrepreneurs are beginning to recognize their weaknesses and are coming to him for help with such tasks as market research and strategic planning.

That doesn't mean they'll gain an edge on more advanced competitors who are continually refining their marketing tools. "The trend now is away from marketing to the masses and toward marketing to niches," Urban says. "That's something that's lost on a lot of small-business owners."

Some experts still insist small-business marketing isn't noticeably improving. "If anything, it's the opposite," says Gioia. "There's a lot of ignorance, a lot of waiting for the phone to ring and orders to come in."

It's likely small businesses will continue to be limited by time, money and knowledge to marketing efforts improvised on the fly. Still, while it may not be textbook, for many, it's all they have.

Know Your Limits

Maria hartrich, 39, doesn't market her services through direct mail, sales calls, telemarketing or even the Web. "It's almost exclusively through word-of-mouth," says the president of Strategic Business Intelligence Inc., a Chicago competitive analysis and market research firm started in 1993.

Word-of-mouth fits her needs, Hartrich says, because she focuses on a small niche--financial information services. By limiting her marketing efforts, she avoids getting more business than her one-person company can handle.

"By growing, you take on the responsibility of managing employees, and you need to have more space," she says. "I want to work out of my home and be able to take off when I want to."

Hartrich's strategy is a common one, says Joyce Gioia, president of The Herman Group, a management and marketing consulting firm in Greensboro, North Carolina. "They limit growth because that's what they're comfortable with," Gioia says.

Hartrich agrees. "If I had employees, I would double my administrative time without doubling my income," she says. "I'm very happy with my income, and I don't want more money [if it means] less freedom."

By The Numbers

Dun & Bradstreet (D&B) surveyed 500 small-business owners and senior executives for its second-quarter 1998 Small Business Hot Topics Research Report on marketing practices. The businesses were selected randomly from D&B's global database of companies.

More than half the firms surveyed had one to five employees; the balance of the firms split into three groups--those with six to 25 employees, 26 to 100 employees and 101 to 500 employees--each representing about 16 percent of the total.

Surveyed firms were located throughout the country. About 45 percent were female-owned, and 25 percent were minority-owned, with "other" being the largest non-Caucasian ethnic group named as owner.

Next Step

  • The Fast Forward MBA in Marketing by Dallas Murphy (Wiley) is a compact reference book packed with definitions, explanations, applications and limitations of both basic and advanced modern marketing techniques.
  • Guerrilla Marketing by Entrepreneur columnist Jay Conrad Levinson (Houghton Mifflin) is the classic how-to marketing handbook for the resource-strapped small-business owner.

Contact Sources

Dun & Bradstreet Corp., 1 Diamond Hill Rd., Murray Hill, NJ 07974, (908) 665-5694

The Geek Squad, (612) 343-GEEK, http://www.geeksquad.com

The Herman Group, (336) 282-9370 ext. 12, http://www.herman.net/joyce

Strategic Business Intelligence Inc., (312) 226-2100, mariath@interaccess.com

Top of the Tree Baking Co., (603) 434-2743, http://www.gordonpies.com