High-Tech Start-Ups Cut Marketing Budgets Again
By Kate Maddox

November 11, 2002

High-tech b-to-b start-up companies, which slashed their marketing budgets by 45% in 2001, will spend even less this year, according to a small survey by Launch Pad, a San Francisco marketing consultancy. The study found b-to-b start-ups will spend an average $1 million on marketing this year, down from $1.2 million in 2001 and $2.2 million in 2000.

"We knew budgets were small this year, but we had no idea how small," said Launch Pad CEO Shelley Harrison.

The online survey, conducted in August, analyzed responses of 33 marketing executives with a title of VP or higher at b-to-b technology start-ups. The sample was recruited from a list of pre-public companies that received venture capital funding after February 2001.

"Every functional area has been squeezed," Harrison said, pointing to budget cuts across the industry in sales, marketing and engineering.

While budgets in all three areas have been cut, the dollars have been re-allocated as a percentage of overall corporate spending, Harrison said. But in terms of percentage allocations, marketing showed the greatest plunge.

Since 2000, marketing expenditures have shrunk from 20% of corporate spending to 13% in 2002, she said. Sales budgets have grown slightly, from 16% to 18% of overall corporate spending. Engineering expenses have grown from 29% in 2000 to 51% this year.

Marketing cuts were deepest in advertising, which fell from 12% of marketing budgets last year to 3.5% this year. Spending on trade shows and events fell from 18% to 12%, and collateral spending dropped from 14% to 9%. Direct marketing expenditures fell to 12% this year from 14% last year.

Just two marketing budget categories - PR and Web site spending - showed increases during the period. PR grabbed the biggest share, growing from 19% of marketing budgets last year to 25% in 2002. Web site spending enjoyed the greatest percentage growth, ballooning from 6% in 2001 to 14% of marketing budgets in 2002.

"The Web site is absolutely crucial to reach an IT audience," Harrison said, noting that almost all companies surveyed were targeting an IT audience.

Nearly two-thirds (64%) of respondents said the fundamental role of marketing has changed as a result of the economic downturn, and 52% said marketing has become a sales support function.

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