Podcast 1.11: Establishing your marketing budget with Tom Lix

Summary:

Special guest, Tom Lix is the quintessential serial entrepreneur and Cleveland Whiskey’s founder and CEO. Cleveland Whiskey is a profitable and growing whiskey start-up with distribution in 16 States and well over 100 medals and awards from spirits competitions around the world. Tom will discuss:

• Common marketing mistakes made early on, and how he adjusted course.
  
   
• Recommendations for business owners to determine their marketing budget and where should those dollars should be allocated. 
   
• Is “watching what your competition is doing” helpful or hurtful as a business owner? 
   
• Metrics. How much should a business owner get hung up on the campaign data and what is a good starting point? 
   
• How has COVID affected Cleveland Whiskey?  Did you have to pivot your business as many others have?

Tom has worked in on-line media (sold one company to National Public Radio), software technology and applications and consulted for leading food, beverage, hospitality, and entertainment companies including Guinness PLC, Proctor & Gamble, H. J. Heinz Company, PepsiCo, The Clorox Company, Burger King and Harrah’s Entertainment. In addition, Lix has consulted to leading media companies and brands such as HBO®, Time magazine, and MTV Networks; travel and transportation companies including American Airlines, Amtrak, and Northwest Airlines (now Delta); as well as service delivery and technology innovators that included American Express, FedEx® and Visa.

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Transcript of Biz Chat Ohio’s podcast 1.11: Tom Lix

Welcome to Biz Chat Ohio, the podcast bringing you big ideas for small business. Throughout this series, we hope to bring the best of small business news and industry trends from Ohio’s thought leaders, and hopefully something to help you run your business a little better. I’m your host, Cathy Walsh, director of the Small Business Development Center at Lakeland Community College, and I’m joined by my co-host and sole sister, Gretchen Skok DiSanto, director of Lakeland Community College’s Entrepreneurship Center and business advisor for the Ohio Small Business Development Center. Gretchen, how are you doing today?

I’m doing pretty good, Cathy. How about you?

I’m doing great.

This is a podcast, I’m going to give everybody a heads up, I’m going to want this to last forever, because I’ve got eight little girls coming over my house tonight for a sleepover with my daughter. We’ve never had the nerve to have that many girls over. So let’s have this last for a while so I don’t have to deal with reality tonight.

Good luck.

So for everybody listening today, Kathy and I, we did a previous podcast in the summer on marketing, but we are once again back to that topic because we consistently see in our Small Business Development Center counseling that this is one that it’s a very significant challenge for many small businesses. And honestly, I teach marketing at Lakeland and I have a really tough time keeping up. I mean, there’s so many innovations occurring in the marketing space, particularly in digital marketing, and you have to be constantly keeping yourself up to speed to make sure that you’re doing the best things for your business that are going to work.

So I’m personally really excited about our speaker today. I know he’s been incredibly busy building his successful business over the last decade. But at Lakeland, we’ve asked him to speak a couple of times, he spoke to our students, and he also talked at a Fast Track 50 event. If you guys don’t know that, that event recognizes the fastest growing businesses in Lake and Cuyahoga county every year. And our speaker was kind enough to speak to those winners one year, and the fact that he’s willing to give back to the community and share with others, it really says a lot about his character and his commitment to entrepreneurship. So we’re so happy to have him here today. So without further ado, I’m going to turn everything over to Kathy who’s going to introduce our special guest.

Yes, today we are joined by Tom Lix. Tom is the quintessential serial entrepreneur and Cleveland Whiskey’s founder and CEO. Cleveland Whiskey is a profitable and growing whiskey startup, with distribution in 16 states and well over 100 medals and awards from spirits competitions around the world. He’s working in online media selling one company to NPR, software technology applications, and consulted for leading food, beverage, hospitality, and entertainment companies, including Guinness, PLC, Procter and Gamble, HJ Heinz company, PepsiCo, the Clorox Company, Burger King, and Harrah’s Entertainment. In addition, Tom has consulted with leading media companies and brands such as HBO, Time Magazine, and MTV Networks.

Travel and transportation companies, including American Airlines, Amtrak, and Northwest Airlines, which is now Delta, as well as service, delivery, and technology innovators that include American Express, FedEx, and Visa. Tom, thank you for joining us at Biz Chat Ohio. Gretchen and I are so pleased to have you with us today.

Cathy and Gretchen, I’m pleased to be here as well. And I don’t know if we have any time left for the podcast after that introduction. I feel like you were going through the Fortune 100 list.

It was quite the list! I was going to comment on that, but I thought, well, I’ll just let that lie there and let everybody feel impressed.

Did I leave anybody out? That’s what I want to know. So let’s dive right into marketing in a small business. And normally I wouldn’t start out with what I would consider a negative question, but let’s just get it out there. In your business, what were some of the marketing mistakes you made early on?

I hate that you start with the assumption that I’ve made marketing mistakes. Really. No, of course we all make mistakes. In fact, you know it’s probably better if I had made more mistakes. I think the biggest problem is I think you want to fail faster, correct faster, do a lot more things. I mean as Gretchen was saying in the intro, so many things are changing in marketing right now. There’s new technologies, new systems, and there is the social media platform of the day, and it’s just so many things to sort of keep track of. And you have to experiment with them all, and you can’t know it all, so you’ve got to associate yourself with really good people to make that happen.

And I think you just learn from the market. You keep testing, you keep asking questions. And I think maybe some of the mistakes are sometimes following what the bigger guys are doing. It’s like, OK, you have a competitor, they’re a big competitor, they’re out there they’re doing x, y, and z. And you say, well we should do that as well. Well, that’s that always seems to be a mistake in that if they’re out there doing television advertising and doing it for a certain geography and a certain demographic, that’s all well and good, but if they’re going to be able to outspend you 100 to one, there’s no sense getting in that space and doing it.

So I try lots of different things all the time. We keep track of them, we watch them, and we just simply try to correct much faster.

Marketing is really noisy, it’s a noisy space. And you know we’ve got that traditional, the digital, the emerging media. What do you recommend a business owner do to determine their marketing budget and where those dollars should be allocated? I mean, I think that’s a great question. And it’s sort of the quintessential question that I get from staff as well.

But I think you have to start with your objectives. What is it you want to do? That’s sort of common sense, but let’s think about what we really want to accomplish. Whether that is revenue growth, profitability growth, do we want to enter into some new markets, what is going to be profitable for us. And then, once you sort of lay that out and take time with that and be very thoughtful about it, then I think you work backwards. And I guess I’d also say, whatever number you come up with, it’s not etched in stone. It has to change constantly.

It should be a reflection of both opportunities and problems. Sometimes you have less money to spend, sometimes you have more money to spend. And I think that, going back to the first point about failing faster and correcting faster, you keep trying lots of new things. I think a flexible marketing budget is really sort of important. Generally, if you’re the marketing person and you come up with that idea and you take it up to your management, they’ll say no, you have to have a number. But in your own head, you have to know that what you’re doing with that money is going to vary constantly during the course of the year.

A plan that you set in place in the beginning of the year probably should not be, especially in a small business, the same plan you end up with. There are so many things that will change. I’m not really giving you a direct answer on that, I’m sorry. But I know you’ve got to put a stake in the sand, I know you have to come up with numbers, and oftentimes it’s going to depend on lots of other things. But if you’re a marketing person, I think you want to be spending as much money as you possibly can acquire, but just doing it really smartly, and being aggressive about what you do. Don’t be timid as a marketer, don’t be timid to ask for more money. Don’t be timid to spend more money as long as you’re doing it effectively.

And go out there and try to do as much as you can and learn constantly from it. And go ahead and, if I’m not answering your question, feel free to ask that question again or pressure me to get to specifics. But when I had to come up with marketing budgets, and now I just sort of approve them and ask people know why they came up with those numbers or what they’re going to do with it, but I think it’s such a hard thing to do. And often, sometimes in organizations you’re simply stuck with a number that somebody else gives you, and then you have to be creative about how you spend it.

And so one thing I was thinking about when you were talking about that is the importance of knowing who your target market is. We often work with small businesses who really aren’t clear on who their target market is. And so when they are making marketing decisions, they’re just kind of throwing stuff out there because they’ll say, well anybody could buy my product. Well that doesn’t mean that you can direct your marketing dollars towards the whole world. Can you just talk a little bit about the importance of understanding who your target market is?

I like to think that there isn’t one target market. There’s a whole series of them. I think the world is composed of lots of smaller niches and smaller groups, and you may be able to define it in broad terms, but I think you have to get down to the micro level and say, really, who are these people? Understanding that you probably have multiple markets and they probably buy for different reasons for different purposes. I know that when we sell whiskey, there’s a big difference between the people who are buying it to use as a gift, as opposed to the people who are buying it to use for consumption. And then consumption occurrences change, so certainly we have many different target markets.

I think it’s important to understand not only who they are, but why they’re buying, and add that to the equation about defining your target markets. And once you do that, I think you have a much better handle on what you should be doing then as a marketer to better communicate with them.

I’ve also got a follow up question. You mentioned that marketing planning and having that plan at the beginning of the year. Would you mind sharing what you do with Cleveland Whiskey? Do you have a year long marketing plan that you’re visiting, your metrics, your outcomes every two weeks or month. How does that work for you? What’s what worked best?

So for better or for worse, we always start with a top line number that says, OK, here’s our revenue target for the year. And with that, of course, there’s gross margins, and there’s net revenue, and income, and all the other metrics. But I start with the top line number that says we’re a small business, we’re trying to grow to become a national company. I expect a certain level of growth every year. And then the question is, OK, here’s the number. How are we going to get there? And I also make sure that the sales group in the marketing group are working hand in hand. So they’re coming up with their budgets even though they’re independent budgets and separate budgets, they’re working on that together.

In the whiskey business, our sales group is making sure that we have product on the shelves, and then the marketing group is making sure that people are going in, and buying it, and taking it off the shelves. And I’ve got to make sure that they’re in sync. What does the sales group need, what can marketing do to help them to make sure the product is flowing out of those stores? I think one of the most important things is to make sure that, right from the start, they work together on that and say OK, we know we’ve got to get to this revenue number. What is it that our groups together can do to get there? And oftentimes that means they’re changing funds around.

They’re saying, well, maybe let’s put more people on the ground, or let’s make sure that they’re able to travel more efficiently and more effectively. And that might mean some of the money that marketing might have would go to sales and vise versa. And even during the course of month to month, it may be in a meeting we realize, you know what, it would really be effective to do this with the marketing side. And sales may say, you know what, I’m going to move away from this. I’ve got some money in my budget, let me move that over. And if I think you have an organization like that, where they’re not necessarily competing but working together, that’s a big deal.

You touched on this a little bit in the first question, I think. But could you talk a little bit more about that we hear watch what your competition is doing, I guess would be that the phrase. And do you find this helpful or hurtful as a business owner?

So I think it’s essential. You have to know what your competition is doing, no ifs, ands, or buts about it. You should know what they’re saying, what they’re pricing, what the product looked like, if it’s a consumable, how it’s being used, why are people buying it. You need to know that. Having said that, especially from a marketing point of view, just being a follower isn’t sufficient. So I think one mistake people make is OK, this is what everybody else is doing. Well, we’re going to do more of this because they do it, or we’re going to try to do it better than they’re doing it. I think that you have to figure out a way to get out in front of your competition.

And you know, that’s not always easy. You may have less money to do it, with less distribution, less product awareness. But the challenge as a marketer is to figure out what are you going to do differently, but also effectively, that knowing what the competition is doing, how are you going to do it differently? How are you going to communicate that cuts through the clutter and the noise that the competition already is out there doing? I’m not sure that’s making sense. But I think it’s just key. And I see so many cases, and I mean, I’ve seen that when I was teaching. But then also as I had people writing budgets and putting together plans, it’s like OK, the justification for doing x, y, and z is because the competition is doing this.

Well, you know what? If they’re doing that, especially if they’re effective doing that, I think sometimes the last place you’re going to go is where they’re doing it. Do something different, or change your target market. I mean, we were talking about target markets. It could be that in that concept, maybe there’s a little adaptation to the target market that says, maybe we’re still going after the same people but for different reasons, or we’ll find different reasons they’re buying our product or they’re buying competitive products, and maybe we can address them a little bit differently.

Can you give us an example of taking that approach in your business?

That’s a good question. OK, yeah. Here’s an example. I’ve always been a fan, personally, of billboards. And I think it’s a little more personal, it’s not as rational as it should be, but I just love billboards, especially good ones. There’s so many bad ones out there.

And when we designed the look and feel of our first Cleveland Whiskey bottle, I always thought, laying that on its side, it’s perfect for a billboard. We don’t even have to say anything. We’ll just put the bottle up there. It’s Cleveland Whiskey, put it in the right places, we’ll do it. And yet, common sense prevailed and said, for us it’s probably the not the most cost effective. It’s relatively expensive. And I was always talked out of it by– whether it was people at ad agencies that I use, or my own staff. And it was just, OK, yes, I know. I won’t do it.

But then I started seeing some alcohol billboards pop up. And I said, you know what? We’re going to do this. We’re going to do it. But they were much bigger companies than us, and so they can sort of afford to do that. And I sort of followed that track and I said, you know what? We’re going to use some billboards.

We experimented with billboards billboards, they were an abysmal failure for us, they did nothing, and I finally have sort of walked my own mistake away and said, yeah, OK. It didn’t make sense, I wanted to do it, I got it out of my system. And I did exactly what I tell people not to do. I followed the competition. I was influenced by my own interests to have a big billboard up there, but now people are wondering if I’m going to ask to be on the Goodyear Blimp next. But that won’t be the case, I don’t think.

So what about what about this? You are great at asking “the five whys.” And if folks don’t know what the five whys, they’re basically five why questions designed to find the root cause of a problem in a business. You ask why over and over to determine that problem. So is that approach applicable when adopting a marketing campaign, and if you think so, how could a small business use this approach?

Yes, I think it’s applicable. And I think it’s really easy to use. It. It just means that every idea that’s being presented has to be challenged. It has to be the question of why. Why are you doing this, why are you spending this, why are you treating it this way, why is this the message, why are you using this particular media, why are we saying this, why does it look that way? I mean, we use it for everything. And it’s not necessarily even for us, it’s not like we practice five whys. But we ask the question why over and over again. And if you can’t answer that, and I hold myself accountable to that as well, when I tell people you have to do something, they are empowered to always ask me why, because that’s just important.

And you should have a reason for the things you do. Sometimes it’s just the answer might be, I just have this gut feeling that it’s going to work. And I think if you can test gut feelings and correct them quickly if they’re wrong, I don’t think that’s a bad idea either. Because as I said earlier, you’ve got to feel more, you’ve got to test things more, you’ve got to correct faster. So sometimes the why is I just have this feeling. I’m OK with that if that’s the reason, but admit that that’s the reason you’re doing it.

Thank you. Follow up for that, that gut feeling, I’m a huge believer in that. And there are people in business will say that no, no, no, no. There’s got to be data behind it, rationale, et cetera, et cetera. Do you have a story where you ran with your gut, and it really worked out for you, even though maybe the data was telling you now this wasn’t going to work or other people were saying this wasn’t going to work?

Well my whole business is based on that. I mean we are a whiskey company that has– some people call it a disruptive technology, I call it a productive technology, or a productive disruption– in that common practice has been to age and mature whiskeys a certain way, and we do something very, very, very differently. It was my gut feeling that it could be done differently, although the evidence of generations showed that this was the right way to do it, this was the proper way to do it, it was the most effective, it was the most cost efficient, all these other things. Every piece of evidence said, you know what? This is how you make whiskey.

And we took an alternative approach and it was based on a sense that there’s got to be a way to do it better. If I could also add, on the sales side, we do the same thing. We had a situation– It’s very costly to go out and sell into stores. To the individual salesperson, you’re going out there and you’re selling a couple of bottles into a store. It’s inefficient.

We came up with an uncommon barrel approach where we go in and blend lots of different finishes together with the store owner and we sell in 100 bottles at time as opposed to seven one or two bottles at a time. Totally different. And it was sort of a gut that said, yeah people are doing it different. All the evidence says this is the way it’s always done, but I think that’s where you have to go with your gut if you’re going to challenge those things.

So let’s talk metrics for a little bit. I feel that understanding marketing research, your marketing reach I should say, and metrics is important to understand the return on investment of your marketing dollars. But we also have to be careful of going down the rabbit hole and getting really lost in those numbers and relying maybe too much on them. But if you could give me your take on metrics when it comes to marketing.

I. Think you have to be selective in the metrics you use I think it’s difficult in that sometimes we spend too much time trying to collect the data and we’re not doing productive work in terms of actually being out there selling and marketing our products. I’d rather focus on the creative side and say, look, come up with new ideas, come up with new approaches, let’s test them and see if they work, as opposed to trying to collect a whole lot of information that may be imperfect in the first place. Big companies, it’s different. You have access to databases, you can buy databases, you can buy information, scanner information, all this other stuff. As a small business, you really don’t have that.

So you’re looking at your daily sales, you’re talking to people all the time. Give me give me stories, tell me what people are saying, go out and talk to our customers, understand them better. Talk to the people who don’t buy from us as well. That’s the data we have to use. And you can’t really sit down there and analyze that too well, at least not in the traditional sense. I’m not going to get numbers out of that. In an alternative career, I was sort of a quasi statistician. I understand how to use the numbers, I had an understanding of how to write the reports, but you know, in a small business you don’t have somebody who can do that. And I think you’re right, the rabbit hole is something we get caught up with too much.

And a lot of people would disagree with me, but that’s just my sense of how we do this. Not that we don’t look at numbers, we know where we’re selling, what we’re selling, what isn’t selling, we look at what the competition is doing, but only where I can get good information, get it quickly and efficiently do I do. I don’t go out and do research studies or spend a lot of time trying to gather and massage data that’s difficult.

Let’s talk about the pandemic. Can you share with everybody who’s listening today what happened to your business, how did you pivot, have you made it through? What are your thoughts on the future? We’d love to hear.

Well, obviously it is a challenging time. And it sort of moved our business in a lot of different directions. One of the first things that happened to us in the whiskey business is that a lot of our avenues to market just weren’t there for us anymore. Bars were closing, restaurants were closing. And I have sales staff in multiple states whose job is to go and visit those accounts, and to have consumer tastings, and to have events, and to go in and meet with people face to face and actually have them sample the product in order to buy it, or order it, or whatever it is. Those people now didn’t have a job to do.

But we, this brings in marketing and it brings in sales, we wound up partnering with the Cleveland Clinic to produce hand sanitizer for them. And there are 51,000 frontline health care workers, no money was exchanged, verbal agreement, we just entered into this. And my marketing team jumped on it to sort of create some packaging that communicated well, and my sales team came in, and they’re actually the ones who did the bottling, and drove trucks delivering the hand sanitizer, and put things in boxes. And so everybody kept busy, nobody got laid off, they all felt like they had a productive and meaningful job. And I think that was important to retain people, to have them. And I mean, that’s a real good case of sales and marketing being flexible in what they do.

And that’s part of who we are. We’ve got a very basic mission statement. Every day make good whiskey and do the right thing, and it really worked for us. I love that mission statement. I’m going to use that my class. We’re talking about mission statements in a couple of weeks, and how so many small businesses don’t have good ones. In fact, they don’t have them at all. It’s normally the larger businesses that we see.

Let’s get a consultant to help them write something that’s just complicated and just doesn’t really work. And you know, we’ve had a series of mission statements along the way, this was one of our earliest. And it always stayed with us, and it’s the easiest to understand, and it’s also easy to live by. You know what you have to do.

We are so grateful that you were able to join us today. We appreciate you sharing your marketing knowledge with all of our listeners. And we do have your website here, being cleavelandwhiskey.com. We’ll make sure we include that in our show notes. Are there any other resources you can mention for small businesses who want to make sure that they stay up to speed on marketing trends and approaches? I mean, do you have go who places that you go to make sure that you’re staying up to snuff?

Besides the bookstores where I’m constantly buying business books. I read voraciously and I can’t stop doing that. But if there are people out there listening that don’t get Seth Godin’s blog, for instance, on marketing and business in general every day, if I would advise you to do any one thing, I’d say sign up for that. Because it’s short, it’s concise, and it gives you sort of great ideas.

Thanks, Tom. We’ll make sure that your website and we’ll get the link to that blog and we’ll put those in our show notes so that people get easy access to them. And we want to thank you so much for being with us today. It was a great conversation and good luck to your business moving forward.

My pleasure. Thank you so much. I’m glad to be here.

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If you have a business question or an idea for an amazing guest or business topic, email us at cwalsh@lakelandcc.edu. you would like to learn more about the SBDC at Lakeland, please visit our website at lakelandcc.edu/sbdc. Our center offers no cost business advising in areas of business planning, access to capital, marketing, and other business topics. We’d love to hear from you. If you are joining us from outside the Northeast Ohio region, you can visit americassbdc.org to find a center close to you nationwide. Thanks for listening. Join us next time for another great episode of Biz Chat Ohio.