Here are the Keys to Small Company Advertising with Q&A | Intuit Founders Scott Cook & Tom Proulx

But anyway, so we went through this period coming out of this, kind of the dark days, and kind of turned the corner. We're starting to get a little bit of cash coming in, and every month we were building up our bank account. And by the end of the summer of 1986, I believe, was when we decided this, the bank thing isn't working anymore. We've got to figure something else. We've got to figure out how to sell the product ourselves. Now, we had at that time a war chest of $100,000 in the bank.

Mm-hmm.

Now, you recall when we started out this company, we were trying to raise venture capital. We were looking to raise millions of dollars for a retail launch. So we now had some cash in the bank, but it was nowhere close to the millions of dollars that we thought we would need for a Kind of a big marketing launch. But we had $100,000. And we had decided with this $100,000, we've got to figure out how to sell this product ourselves. So what do we do? What do you do with $100,000 to launch a product with no internet? Thoughts?

Newspaper.

Newspaper. Yeah. Advertising.

Advertising.

Direct response advertising.

Yeah.

More cold calls. Cold calls? Yeah, that's—

Kind of hard when you're selling a product for $49.

Yeah, you don't— direct sales, you've got to have a higher ticket price to make that work out.

Radio station advertising?

Uh-huh.

You've got to put us in the retail store. Yeah, it's a chicken and egg problem. The retail stores want to carry you if you have people coming in asking for it. If you don't have people coming, then they won't carry it. It's a chicken and egg problem.

And that's the problem with radio advertising too, is that radio advertising, TV advertising— not that we could afford it— but that kind of brand-building advertising, demand-building advertising requires some ability for the customer, once they get excited about it, to be able to buy it. And so they need to be able to go to their software store to buy it, but the software store doesn't want to carry the product unless it sells. And that's the chicken and egg problem. They'll carry products that sell, but how do you get products to sell if you have no distribution? And that was the fundamental problem that we had, and it wasn't unique to us.

And the answer is?

And the answer is exactly what you said. We bypassed the retail channel and went with direct response advertising. We cut the price of the product in half from— it was originally $99, we cut it to $49 to make it— we thought, just on judgment, we thought that was going to be an easier impulse kind of purchase. Then the big question was, how do we do this direct response advertising? There was a big decision point we had. We were entering the Christmas season of 1986, and the prudent approach would be to run an ad or 2, do a test, see if it works. By works, it means there's an 800 number. Our 800 number is in the ad for them to call and buy from us, give their credit card over the phone. We wouldn't know whether the ad was working. Then if it works, then you expand it. If it doesn't work, you tweak it in ways that you think will make it work, and then you try it again until you've got something that's working. The problem with that approach is it takes time. By the time you run this test ad, read the results, and let's— hoping for the best, let's say we run the ad, read the results, and it works. Now we say, okay, now let's do it broadly. We've missed the Christmas season. Just our timing was such that we would have missed the Christmas season. It's a retail product. Big sales happen around Christmas. If we did that and had to wait and miss the Christmas season, we'd really have to wait another year before we'd be able to do this. You could sell some in the rest of the year, but the big— The big selling season is Christmas, and we didn't want to miss it. So that was the big question, is do we go for this? Do we just say, this is going to work, and do it, and bet the company— literally, we got $100,000. That's not a lot. Bet the company on this thing working. Or do we be a little more prudent, test it, and expand it if it works? And if not, try it. And what do you think we did? We did it.

You bet the company.

What? You bet the company. All right, show of hands. How many of you think that we were prudent and methodical? Raise your hand. Zero. So does that mean you all think that we bet the company on this? We've never done this before. We're going to bet the company on this idea? Darn right. We were tired of this. We wanted to get out of it. We wanted to either have it work, obviously, or have it not work so we could get on with our lives.

Yeah.

And, and that's what we did. We, we committed to $120,000 worth of direct response magazine ads in all the PC and Apple magazines, and then we crossed our fingers. Scott wrote the ads himself. They were very copy-intensive ads, not lots of pictures. It was a copy-intensive ad because We needed to close the sale right there. We had to make sure that any question that the customer had about our product was going to be answered there. We couldn't rely on him going to a software store and asking the salesman for questions about our product because the salesman never heard of us. And so that's what we did.

And I did get the smartest guy I knew in direct marketing to teach me how to write a direct marketing ad. And I can— I would take his principles, I would draft the ad, I would mail it to him. This was even before we had a fax machine. And he would critique it and mail it back, and then I'd rewrite it. So I did get some— a bunch of coaching. But thank God the ads worked, or we wouldn't be here. You guys would be listening to somebody else.

And by worked, we would run an ad that would cost us $10,000, and over the next 30 days, we would make $20,000 worth of money, of revenue off of those ads.

It doesn't usually happen.

Yeah. So we were doubling our money month over month.

So, Tom, I think we might just answer— go to some of these questions, and then we can open up to more.

Okay.

Let me pick the bottom 2. How to learn from customers. Well, we— this one, in addition to the work we did with surveys and interviews, one thing I've learned is you want to go visit customers. We developed a method called Follow Me Home testing when we thought that our research wasn't telling us the actual customer experience. So we got a local software store— this is when software was still sold in stores— to hand a flyer to every customer who came in and bought Quicken. And the flyer said, hey, call us before you take the shrink wrap off the box, and we'll send somebody to come watch you. And so that's what we've done ever since. The idea of actually watching real people really do the real thing that you're trying to get them to do, or that you would like to build a product for, is where a lot of learning happens. Go in and observe with your eyes and look to understand the problem and the emotion and the pain because you're really looking for a pain point and the best way to discover a pain point is to see it with your own eyes.

I think just to add to that, a lot of times I think people think that you can ask customers about their experience, what would you like or what would you pay? They don't know. And even if they do know, they don't tell you honest answers. So we found that just observing real people doing real things, that's the only way to really know.

And then you also get surprised by stuff you never expected that you wouldn't have found if you weren't there watching. Okay, how to stay afloat when the product is— the market is yet to come. So we talked about some about how to stay afloat, at least our experience. Let me talk about this product whose market is yet to come. I kind of believe that that's not the province for startups, that a startup shouldn't attack a market that isn't— that can't come right now. You can't get the money to fund you long enough. A big company could invest for— I mean, P&G, there are some products they've invested in for 20 years because they've got—

20 years.

billions of dollars of staying power. But startups don't. You gotta find something that people will buy now. So I think you should find a problem that's real today that you can solve today. And leave the future problems that don't yet exist to somebody else. Maybe after you have your first success, you could fund one of those. But if you look at the big successes, the names you all know, they all worked on solving real problems real people had today. So Facebook was useful in version 1 at Harvard. Google was useful in its early version because search was screwed up bad in 1998. Twitter was useful in version 1. They didn't have to wait for a market that wasn't there yet. It solved a real problem of human connection that was real then. It's real now. So that's my advice, is to avoid markets that don't exist.

Thank you.

Or rather problems that don't exist. There may not be a market yet, but if the problem isn't real, your business won't be either. Let's see, how to protect against disruption? I think every successful company faces this, and it's a tough question. I think you've always got to be looking underneath where you are now. Typical disruptor pattern is they come underneath. It's either simpler, cheaper, Or does one slice of a problem that you didn't think about. So it's tempting when you get successful to keep looking up and raise price and add features, but you got to force yourself to look underneath. So with— in TurboTax, we didn't do that. There was a competitor who came out with a free tax product and they kept growing share. So eventually we matched that and had to go to free on our low end on TurboTax. As soon as we did that, the competitor stopped growing. And our growth picked up. So you got to be ready to cannibalize yourself. In— it's one of the reasons why we have Mint, because Mint being a free offering that's very simple to use means that people who want something simple and cheap can get in at Mint. So that's the reason we did the Mint— one of the reasons we did the Mint acquisition. So I think you've always got to be looking underneath. We found there are businesses that aren't ready for accounting yet, so we sell QuickBooks. But there's some businesses, very small, that aren't ready yet. So we're working on some things for those customers, things that are not accounting, things that you'll need before you ever need accounting. So we can try to serve the needs of customers so that by— once they're customers of ours, when they need accounting, we'll be there. So that'd be my quick thought about how to protect against disruption. How to price? Boy, who knows? That's a black art. I don't think there is a formula on that.

I think the one thing I would— Just a piece of advice about the question of how to price is don't kid yourself that you can do a survey of customers and ask them, would you be willing to pay X? They lie. They're wrong. They have no idea. So I don't know how you get to X, but that way doesn't work.

Yeah. Yep. Yeah, we've done— we occasionally make the mistake of surveying customers on would they buy at a certain price. And the results have never been projectable. They can be off 20 to 1. So yeah, Tom's absolutely right. Would it be better to overestimate or underestimate? On price? So you're saying is it better to underprice or overprice?

Yeah.

My guts are to underprice because if you underprice and get volume, you'll be fine. If you don't get the volume, you're probably dead. Is it a business with software in it?

No.

Oh, it's not. Okay, then the rules may be different. Software, you've got A fixed cost of development and generally low marginal cost, so there you need to get the volume to— so that's generally why software can be priced low and succeed, or even free if you find other revenue sources.

It's a lot more fun to have lots of volume.

Yeah.

You know, dollar— if the dollars are the same, I'd rather have a lot of volume at a low price than a few big deals at a high price.

Maybe we open up. We didn't get to this buy or build. You want to tackle maybe?

That's a tough one. I mean, I think buy versus build, you look at the economics, but you also have to pay attention to what's important. And if your product, if the intellectual property is the big The big deal about your company, your idea, I want to have that in-house. I don't want to farm that out. I don't know if everybody agrees with that, but that's my feeling. I like to have my arms around it. I like to be able to control it. If I'm working with somebody outside and I recognize a problem or an improvement that I need to make, if they're my people and me building this, I can work 60 hours straight if I have to, and I have, to get a product fixed and out to market. If I'm dealing with somebody else, I can't do that. So I like to— my bias is to build it myself. But every situation is different.