The Limitations of Referrals
Carlton Hoyt
While less common in highly technical industries such as life science tools and services, it’s not wholly uncommon for entrepreneurs to “boot-strap” their start-up companies (try to start without external funding and race to become profitable before they run out of cash). Yet more common, even with outside investment, is under-capitalization. In either case, when small companies start to become low on cash, one of the first corners that often gets cut is marketing. Entrepreneurs sometimes think that word-of-mouth or referrals will be a sufficient marketing tactic to grow their business, but that is very rarely the case for life science products and services. Why is this the case? Customer interaction patterns. To illustrate my point, let me give an example of when referral-based marketing can be effective.
Take Twitter as an extreme example on one end. Twitter never advertised. They were established 100% on word-of-mouth marketing and over their short sub-5-year history have ballooned to over 200 million users and are now the ninth most popular site on the internet. You can top that off with an estimated valuation of $8 to $10 billion dollars. Why was twitter able to be so successful at harnessing the power of referrals / word-of-mouth marketing? There are two key factors. The first is that Twitter was something that people were excited about and talked about – obviously you can’t be successful at word-of-mouth marketing if you don’t create something that people want to talk about. That, however, is something that life science companies can replicate. The other factor, however, is something that life science companies cannot replicate, and that is customer interaction patterns. Anyone, anywhere could be a twitter user so long as they had a computer or a cell phone. This meant that in many markets everyone was a potential user, and connections between users and potential users could be drawn seamlessly. Interaction between the groups was very easy and close at hand.
Companies manufacturing life science tools do not have the advantage of everyone being a potential customer. Customers are usually grouped into discrete units with limited interaction – universities, research institutes, pharma / biotech company research centers. If a scientist at university X is very happy with your product, this scientist will tell others around him or her, but the pool of potential customers will often be limited to those within their institute since that is where the relevant connections involving frequent interaction stop. This is especially true in the more restricted-access and secretive environments of pharmaceutical and biotech laboratories.
You can analogize the situation to an infectious virus. If a virus can infect anyone, it will have an easy time spreading. If it can only infect a small subset of the population, however, and those populations are grouped together and quarantined from each other, the virus will have a very difficult time spreading. A similar quarantining happens to word-of-mouth marketing in the life sciences, so don’t rely solely on referrals to grow your market share. There are enough low-cost and effective ways of marketing to provide even cash-strapped bioscience startups high-ROI options to more proactively reach their target audiences.
Branding is an important part of marketing in the life sciences,