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Jan 12, 2009 | Comments

Over 60 years ago, the greatest investor in history, Warren Buffet, challenged his mentor, Ben Graham.

When Graham evaluated a company, he considered only past performance metrics: earnings, income statement, balance sheet. These numbers, after all, represent a company’s performance.

Buffet challenged the sage and supplemented his analysis with intangibles, such as company management and brand strength.

So which is it, the quantifiable performance or the intangibles? What ultimately drives success?

Marketing ROI

I face this same dilemma when approaching marketing ROI. For most large companies, management will not pursue a marketing strategy unless it has a proven ROI. Every dollar invested should yield >$1 return. Sometimes we forget that marketing is a business; we are (and should) be after profit.

The Fluff

But how can you quantify fluffy things like brand, social media, relationships, awareness, etc.? I have yet to witness a solid analysis of Twitter, but nearly every digital marketing agency recommends it as part of a “social media strategy.”

Suppose you are CMO of GM. Your company is on the brink of bankruptcy and you have $10,000 to invest. Agency 1 recommends a commercial. Agency 2 recommends a search campaign. Agency 3 recommends a campaign to cultivate relationships with your current customers. Agency 4 recommends an email campaign. Which would you choose?

Here’s why the debate is pointless: one of the greatest fallacies in business is to use past success to predict future performance. I don’t care if Company A implemented X strategy and achieved Y ROI. This is because 90% of success is driven by the process, specifically the passion and capabilities of management.

Pick a marketing strategy with a reasonable success rate and pair it with strong management. This will, on average, yield a stronger success rate than anything comparable. Take it from baseball legend Ted Williams:

“In his book The Science of Hitting, Ted explains that he carved the strike zone into 77 cells, each the size of a baseball. Swinging only at balls in his “best” cell, he knew, would allow him to bat .400; reaching for balls in his “worst” spot, the low outside corner of the strike zone, would reduce him to .230. In other words, waiting for the fat pitch would mean a trip to the Hall of Fame; swinging indiscriminately would mean a ticket to the minors.” [1997 Berkshire Shareholder Letter]

Side-note: Fortune 500 companies of the world– Twitter, Facebook, MySpace, Blogging, etc–these are the “worst” spots in the upper-right corner of your strike zone. Let someone else (particularly a well-experienced company used to these pitches) swing at those opportunities.

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