One of the most important principles of marketing is persistence.  Every marketer I’ve ever worked with has said that a target has to be exposed to your message at least six times before it sinks in.

At first, I wasn’t certain if I believed them.  After all, six times seems kind of arbitrary, and I never saw any scholarly research to back it up (I am so ancient that this was actually in the pre-Google days, and you had to go to the library to look anything up).

Yet as the years went by and I heard it from more and more people, I came to accept it…which just illustrates the power of this homely rule.

But there are also some important implications to this rule that most people forget, especially in this age of instant gratification.

If it takes six impressions to make an impact, the relationship between marketing and results is non-linear.  In a linear world, buying 1 week of ads would drive 10% awareness, 2 weeks 20%, and so on.  Here’s a quick table for emphasis:

Week 1: 10%
Week 2: 20%
Week 3: 30%
Week 4: 40%
Week 5: 50%
Week 6: 60% 

But in the non-linear world of the rule of 6, the results actually look more like this:

Week 1: 0%
Week 2: 0%
Week 3: 0%
Week 4: 0%
Week 5: 0%
Week 6: 60%

If you give up after Week 5, you’ll have spent 83% of the money and achieved 0% of your goal.  You can only achieve a worthwhile ROI if you have the stomach to stick with your guns and keep sending your message out, even without visible results.

I have a theory on why this principle works.  I believe that what’s actually happening is that a lot of the effects of marketing are exponential, rather than linear.  That’s why overnight success is generally an oxymoron.

What’s actually happening is that the press only picks up on the effects of “week six” marketing–the debut album, or the starring role in a sleeper hit that shocks Hollywood–and completely ignores the previous five weeks of marketing–the years of playing in clubs and building up a fan base, working for scale in indie movies and making the right contacts.

In my own life, I began 2002 as a failed entrepreneur who had managed to lose $6 million of investor money.  I had no job, no money, and no reasonable prospects (caveat: I did have degrees from Stanford and Harvard Business School, but we’ll ignore those for the time being).

It was around that time that I started getting involved in professional organizations such as SDForum and HBS Tech.  It was also around that time that I decided to change my hermit-like workaholic ways, and start reaching out to venture capitalists and other entrepreneurs.  And I started using something called Blogger that had recently been launched, and was being run by a single dogged entrepreneur named Evan Williams.

For years, it was difficult to see how those activities were making a difference.  Those were weeks 1-5.  But fast-forward to today, and all the little things and persistence ended up making a big difference.  I’ve met hundreds of wonderful people since then, including many entrepreneurs that I’ve invested in, and many angels and VCs that have invested in me.  Thousands have read my writing, and many more have read about me and my projects in TechCrunch, The Deal, and many others.  And most of these good things have happened in just the past 18 months (helped along by a heck of a boom in our industry).

But if I had gotten discouraged with entrepreneurship and decided to cash in my chips by becoming a consultant or investment banker, I would never have had all these great experiences.

Marketing is hard, and the rule of six makes it harder.  You have to be willing to persist, even when all the standard measures scream for you to pull back and give up.  But if you’ve made the right call, and you persevere through day six, you may find you’ll get the chance to bask in the glory of your “overnight success.”

When I started my first company (long, long ago in a valley not so far away), I learned a valuable lesson from Jim Fitzsimmons, the guy I recruited to be CEO.

Jim had experience both as an entrepreneur, and as a corporate manager (he had been assistant controller of all of Pepsico), and he had a favorite saying:

“Chris, you get what you inspect, not what you expect.”

Translation?  Unless you can define success in measurable terms, you’re not likely to achieve it.

This is why metrics are the lifeblood of marketing.  Just as professional military commanders understand that logistics are usually more important than the oh-so-sexy field of strategy, so professional marketers understand that metrics are more important than flashier cousins like branding and positioning.

Unlike Sales or Engineering, where everyone knows how to measure the results (”How much did you sell?”  “Does the product work?”), Marketing is not blessed with such simple metrics.  While it is important to be in the right sector of Gartner’s Magic Quadrant, inclusion or exclusion doesn’t determine the fate of your company.  And don’t forget, Pets.com had great brand awareness.

There are marketers that slide by on pleasant talk and cool advertisements–these are often enough, especially in large organizations, to satisfy questions about the marketing budget–but startups don’t have that luxury.

It’s a challenge, but you have to pick the metrics that matter, and then manage to them.

My personal philosophy is to manage sales support and branding/awareness separately.  Measure your lead generation programs on the sales they generate (and how cost-effectively they do so), and separately agree on the amount you’re willing to spend to generate awareness and PR.

Even then, I believe it is important to set PR targets such as # of mentions and article placements.  Otherwise, it is far to easy to spend $20K/month on a PR agency without knowing what you’re really getting.

Figuring out what to measure isn’t easy, but if you do a good job of defining your goals, it makes your ability to judge your success (and justify your budget) far greater than relying on that old-fashioned blarney.

A lot of the young entrepreneurs I work with ask me about raising venture capital.  I usually paraphrase Churchill’s famous quote about democracy–venture capital is pretty much the worst form of financing…except for all the others.

Venture capital isn’t a bed of roses for entrepreneurs, but it’s usually the best option available.  The following is my short primer on the potential drawbacks of raising VC, and what you, the entrepreneur, need to keep in mind as you travel down this road.

***

Raising venture capital does two potentially bad things–it raises expectations, and it reduces your control.  Of course, it’s often the right call–I don’t think that Google, Amazon, eBay, Yahoo, Cisco, and so on regret raising money.
 
In terms of expectations, VCs invest to make money.  And unlike public company investors, because they are running major risks, they require major rewards.  If you give a VC a choice between a sure 50% gain and a 1% chance at making 100X your money, they’ll go for option B in a heartbeat.
 
Remember, they have a portfolio of investments, so what matters for them is expected value.  They expect most of their investments to fail.
 
A good rule of thumb is that about 10% of venture-backed companies actually become successful.  This may sound bad, but it’s a heck of a lot better than the average success rate for non-venture-backed technology startups.
 
So when you raise VC, it really marks the beginning of the process, not the end.  The only time you can relax is when you finally exit the company via acquisition (if you IPO, you still have to gut out the lock-up period and pray that the public markets hold up).
 
Let’s talk about expectations.  If you raise $5 million, and then sell your company for $10 million, you might feel pretty good.  Hey, you made $5 million!  Wrong.
 
First of all, you have to take into account the liquidation preference.  VCs insist on at least getting their money back before you the entrepreneur sees a dime.
 
This is actually a pretty reasonable precaution on their part.  Otherwise, if you raised $5 million in exchange for 50% of your company, you could simply liquidate the company as soon as the check cleared, and make a cool $2.5 million (sticking the VCs with an instant $2.5 million loss).
 
That’s why you’ll never see anything less than a 1X liquidation preference, unless your VC is smoking crack AND mentally incompetent.  In the bad old days of the bust, desperate entrepreneurs even agreed to 2X or 3X liquidation preferences.  These days though, 1X is pretty standard.
 
But the liquidation preference isn’t the only factor.
 
If you raise $5 million with a 1x preference, and you sell for $10 million, you’ve still get $5 million to split, $2.5 million for the VCs, and $2.5 million for you and your employees.
 
However, your VC is going to look at that piddling 50% return on his money and think, “What a useless investment!”  VCs will rarely let you sell for less than 3X your last post-money valuation, because they want at least a 3X return on their investment in a successful company, and prefer 10X or 100X.
 
Side note: Google and Sequoia paid a total of $25 million for a 20% stake in Google.  Google currently has a market cap of $190 billion.  Even assuming close to 50% dilution (which I think is too much), that’s $25 million for $100 billion, or a 4,000X return.  That, my friends, is a grand slam, hat trick, and 100-point game all rolled into one.
 
So if you raise $5 million on a $10 million post, good luck trying to sell for less than $30 million.
 
When you’re pre-VC, a $10 million exit can make you rich for life.  Post-VC, you’ll never get a $10 million acquisition past the board, unless they’ve truly given up on the business.
 
And remember that 10% success rate rule of thumb.  If you’ve got a chance to sell your bootstrapped startup early for $10 million, just to get the equivalent expected value, you’d have to get a $200 million exit ($200 million X 50% stake X 10% chance of success) to justify the risk.  If you get that exit and make $100 million, great, but there’s a 90% chance you go home with a year’s supply of Rice-a-Roni.  I don’t know about you, but a sure $10 million sounds a lot better than a 10% shot at $100 million.
 
Don’t forget, Jonathan Abrams was offered $30 million in pre-IPO Google stock for Friendster, turned it down to take money from Kleiner Perkins at a $53 million pre-money, and ended up with nothing.
 
Of course, most of us aren’t lucky enough to get early buyout offers, so we’re generally going to end up raising VC sooner or later.
 
Raising a Series A also really changes how much control you have as an entrepreneur.  Generally, you’ll end up with a five person board, with two VCs, two folks from management, and one “independent” board member.
 
Pop quiz: If you have someone like an attorney or accountant as your independent board member, whose good side would he rather stay on?  Yours?  Or Sequoia’s?
 
The Board does two main things–it sets the compensation of the CEO, and it decides whether or not to to fire the CEO.
 
Another pop quiz: If your company runs into trouble, would the VC rather put their faith in you, the first-time CEO they’ve just met, or an old friend who has come through for them many times with past deals, and has made them hundreds of millions of dollars?
 
Even if you do manage to retain board control, your VC exercises considerable power simply because she has the option to withold additional funding.  Believe me, it’s not easy to raise another round if your existing investors refuse to pony up.
 
Let’s sketch out the hypothetical scene: You take money from Mike Moritz at Sequoia.  You end up clashing, but because you retain a board majority, he can’t get rid of you.  Now it’s time for you to raise more money.  You have a great meeting with Kevin Harvey at Benchmark.  He loves the deal.  Then he calls up Mike.
 
Kevin: Hey Mike, how’s the private jet?  Listen, I was just wondering what you think of Acme.com and Joe Entrepreneur.  I saw you did their Series A.
 
Mike: The company is doing well, but Joe is a nightmare to work with.  Run away!
 
Kevin: So you’re not participating in the B round?
 
Mike: Hell no.
 
Kevin: (To himself) It’s seems like a good company, but do I really want to invest in a guy that screwed with Mike Moritz?  Not bloody likely.  Unless I can figure out a way to stack the board so that I can bring in Meg Whitman as CEO once the round closes….
 
If your existing investors won’t support the company, you have a 0% chance of raising more from traditional VC.  And VCs know it.
 
And you know what?  The VCs are trusting you with millions of dollars.  You’re damn right they want some level of control.  You would too if you were in their shoes.
 
So to summarize:
 
Raising a VC round comes with a lot of drawbacks.  It limits your exit flexibility.  It reduces the amount of control you have.  It increases the likelihood that you’ll be replaced if something goes wrong.  But in most cases, it’s still the right thing to do.
 
Just remember that VCs do deals to make money.  They have a portfolio strategy where they’d rather swing for the fences with individual investments, trusting that the numbers will even out in the end.  Their interest lies in maximizing shareholder value…and in some cases, they may feel (possibly correctly) that shareholder value will be enhanced with you, the entrepreneur, out of the picture.  But then again, shouldn’t you be focused on shareholder value above all else?