Future demand: why start-ups stall, and how to avoid it
Start-ups are often brilliant at converting the demand that already exists. The trouble comes a few years in, when that pool runs dry. The answer is to start creating future demand sooner.
Marketing has two jobs: converting the demand that exists today, and creating the demand you will need tomorrow. Fast-growing start-ups are usually excellent at the first and neglect the second. That is why so many stall a few years in, as easy-to-reach buyers run out and acquisition costs climb. Building future demand, through brand building, is how you keep growing.
IN BRIEF
Marketing has two jobs: convert existing demand and create future demand.
Start-ups excel at converting existing demand but often neglect creating future demand.
Growth stalls when the pool of ready buyers runs dry and acquisition costs rise.
Only about 5% of buyers are in market at any time, so most growth comes from
future demand.
The two jobs of marketing
Marketing has two roles of roughly equal importance: converting the demand that exists today, and creating the demand you will need tomorrow. Performance marketing converts the buyers who are ready now. Brand building creates familiarity and preference among the buyers who will be ready later. James Hurman makes this case well in his book Future Demand, and it sits behind both the 95:5 rule and the 60/40 rule.
Why start-ups stall
Start-ups are often excellent at attracting early buyers drawn to a new and innovative offer. In other words, they are very good at converting existing demand. The trouble tends to start two or three years in. The pool of active buyers is exhausted, customers become harder to find, and acquisition costs rise. Because little or no investment has gone into building the brand, there is no reservoir of future demand to draw on.
Converting demand grows you until the ready buyers run out. Creating demand is how you keep growing after that.
The 5% problem
Research from the Ehrenberg-Bass Institute found that, on average, only about five percent of buyers are in market at any one time, and although the work was in B2B, the same logic applies to B2C. If you only ever talk to in-market buyers, you are fishing in a very small pool and ignoring the roughly ninety-five percent who will buy later. Future demand is built among that majority, long before they are ready to purchase.
What is the right balance?
Binet and Field's 60/40 split is a useful guide, but they have been clear that it is not a strict rule. It varies by category, ranging roughly from 80/20 to 50/50. Many founders baulk at spending even half their budget on brand building rather than immediate sales. Yet the evidence consistently shows that the businesses which invest in future demand are the ones that keep growing, and that command the highest exit values.
How to start building future demand
A few practical conclusions:
Treat brand building as creating future revenue, not as a vanity cost.
Start before the existing-demand pool runs dry, not after growth has stalled.
Reach future category buyers broadly, and build familiarity and memory.
Hold a meaningful share of budget for brand building, even when activation is tempting.
FREQUENTLY ASKED QUESTIONS
What is future demand in marketing?
Future demand is the demand you create among buyers who are not ready to purchase yet, so that they choose you when they are. It is the purpose of brand building: to build awareness, familiarity and preference among future buyers, rather than only converting the small number who are in market today.
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Why do start-ups stop growing after a few years?
Many start-ups grow quickly by converting existing demand, attracting early buyers drawn to a new offer. After two or three years that pool of active buyers runs dry, customers get harder to find, and acquisition costs rise. With no brand built, there is no future demand to sustain growth, so it stalls.
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What is the difference between creating and converting demand?
Converting demand means turning buyers who are ready now into customers, which is the job of performance marketing. Creating demand means building awareness and preference among buyers who will be ready later, which is the job of brand building. A healthy business does both, because most buyers are not in market today.
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How much should a start-up spend on brand building?
Binet and Field's work suggests roughly 60% on brand building and 40% on performance as a starting point, though the right split varies by category, from about 80/20 to 50/50. Many founders resist spending so much on brand, but the evidence shows those who invest in future demand grow more and exit higher.
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If you would like help applying any of this to your own business, that is what Marketing Means More does. Get in touch for a free thirty-minute conversation.
Written by Mike Biscoe, Fellow of the Chartered Institute of Marketing and founder of Marketing Means More, a brand and strategic marketing consultancy based in London.
