Private equity and venture capital are starting to see the wisdom of optimization strategy. The flow of money within the portfolios of these firms assumes that only 1 of 10 investments will ever hit, a 10% win rate. The talk around Silicon Valley these days are the true winners, the unicorns, which are pushing billion plus evaluations. We rarely talk about the 90% of investments that died 2 years into their funding raise.
Database marketing and optimization may be better aligned to who wins or loses in the Business to Consumer marketplace. As a decision scientist, we have an obsessive desire to squeeze more productivity out of every marketing dollar. John Stevenson, an early mentor, used to speak of the fact that a 2% response rate really illustrated that we, as direct marketers, were wrong 98% of the time.
The conventional wisdom is that 50% of marketing is wasted. In 2013, I build one of the first “big data” databases in the U.S.: 530 million phones by 270 million households by 58,000 attributes. When we modeled out high value consumers, by brand, we found that most brands only attract 6 to 9% of U.S. households. Simply said, true waste could be approaching 94% for most brands.
As PE and VC drop in initial funds into their investments, they would be smart to have decision scientists optimize the marketing side of the equation. Media optimization, predictive analytics, and market sizing can reduce or eliminate massive amounts of waste in this equation. We are seeing improvements of 80 to 400% using big data and statistics.
I have started consulting with several of the firms, ranging from angel to Series B. It will be exciting to report the results of these experiments in the startup world. Optimization may be a true accelerator of who wins.