I am overly fond of quoting Peter Drucker who said “Business has only two basic functions — marketing and innovation” and everything else is merely administrative labor.  But you have to give the man credit for stating a truth as succinctly as could possibly be done.

The effect of marketing on innovation must be understood.  Unguided innovation has created many interesting, amusing and completly unprofitable technology products that caused tons of venture capital to evaporate (often through excessive and misguided marketing budgets).  Similarly, marketing occasionally identifies untapped markets, and is the seed for new and successful products (unless the market research was flawed, in which case see the preceding outcome).  Thus, marketing is both a creator and regulator of innovation.

This subject is often not understood my entrepreneurs and even CEOs of major corporations.  Inbound marketing — the more interesting half of the profession — is all about understanding markets, buyers and competitors and serves as both a regulatory governor and catalyst. Let’s break-down the two halves of the schizophrenic condition know as marketing strategy.

Our first case is where innovation has occurred organically, often in the alleged mind of the entrepreneur.  In their own ad hoc way, entrepreneurs perform market research:  they observed some part of some market, witnessed a gap between what people want to achieve and how products failed to help buyers do so, and attempted to create products that bridge the gap.  Often such products fail because:

Market size: The market is very small or the people who want the product have no budget or buy authority.

Whole product: The entrepreneur does not completely understand the needs (expected outcomes) of his market, or tries to bridge so many segments early on that he never creates a whole product for any one buyer.

This is where marketing’s regulatory function comes in.  Marketing must validate that markets exist and describe to engineers what the market requires.  The innovation may have occurred organically, but marketing ties the germ idea to a trellis (segment alignment) and waters the roots (whole product definition).  Market research thus helps expand/refine product definitions and confine the product concept to viable segments.  It regulates and nurtures innovation to conform with reality.

The flip side is where inbound marketing discovers the market need.  While performing market research (typically qualitative) certain trends may emerge.  Silicon Strategies Marketing recently performed a “deep interview” series with key buyers in one market in order to measure branding issues, and in the process kept observing a negative similarity among all the respondents.  Observing this similarity of responses led to the identification and development of a new product.  Thus, marketing was like a structured entrepreneur and identified a need/gap in a market.

A recurring management problem is that CEOs often do not understand this half of marketing’s job.  This is especially true with innovators and out-of-the-box leaders with myopic (or megalomaniacal) vision.  Market research decreases the probability of failure by reining in the unfounded expectations of the innovation, or expanding the vision to meet market requirements.  Visionaries don’t understand the value of marketing’s innovation contribution because in their eyes the original concept is perfect.  In reality it isn’t.

Nine out of ten funded start-ups never succeed.  The percentage for unfunded start-up failures is higher.  Yet check the boards of any tiny tech company and you will not see a marketing strategist listed.  My conversations with VCs indicate that lack of marketing perspective is the bane of the losing part of their portfolios.  In all cases there was innovation but no marketing to guide it.

Poor Peter is moaning in his crypt.