Do you need more baskets or do you need more fruit?

I have found that a good analogy goes a long way toward explaining a phenomenon or principle that is complex or dependent on a great deal of specialized knowledge.  (More on that topic later, I promise.)  Today I'd like to introduce you to the baskets vs. fruit metaphor.

I invented this metaphor to facilitate discussion around how to set a marketing mix between lead generation and true demand generation (or you can call it awareness or preference building or even brand building if you prefer).  It's the fruit and baskets metaphor.

Imagine a small village in pre-industrial society.  This village is situated on the edge of a medium-sized wood.  In the wood can be found fruit trees.  The members of the village have learned that they can go into the wood and hunt around, and with sufficient effort they will find trees bearing fruit.  They can pluck the fruit and bring it back home, and with enough effort the entire village can eat this way.

Because it's a dense wood and fruit trees are infrequent, it takes a lot of work to find one, and leaving the wood and returning to the exact same tree later is nearly impossible.  Furthermore, it can be a considerable trek through the wood to any given tree, meaning that the time required to go back and forth can hack out a decent piece of a given forager's day.

Therefore, someone in the village stumbles on the idea of baskets.  The villagers weave baskets and send them out with the foragers.  When foragers discover a fruit tree, each can harvest and carry back an entire basketful rather than what can be carried just in a pair of hands.  The result is instant and meaningful.  Each forager is coming home with more fruit than before.  Efficiency is up, and the village is prosperous.

What do the savvy villagers do?  Weave more baskets, of course.  As they create and send out more baskets, the amount of fruit returning to the village increases.  Life is good.

Unfortunately as the villagers continue to produce and release an ever increasing number of baskets, a strange thing starts to happen.  Baskets start coming back less than entirely full.  Soon the average baskets is only 80% full when the forager returns from the wood.

How do the villagers address this problem?  More baskets!  They produce a bunch of additional baskets and send them out into the wood, but now the baskets are coming back 50% full and the villagers are still behind on their production goals.  I'm sure you know what the villagers do next.

That's right.  They produce a whole boatload of new baskets and send them into the wood.  But now the baskets are coming back only 20% full and the villagers continue to fall short of their fruit production quota.

I hope the metaphor is obvious.  The village is your company, and the wood is your market.  Fruit is revenue (or unit volume, or customers, it doesn't really matter to the metaphor).  Foragers are sales professionals, and baskets are lead-generating marketing activities.  In the beginning the company has sales professionals who are getting sales the hard way, one at a time, as so many companies do in the beginning.  The company discovers lead gen, and originally the results are fantastic.  Sales are up, sales efficiency is up, and life is good.  We're all gonna be rich.

However, as the company continues to scale, it inexorably finds that lead generation efficiency declines.  Each dollar spent earns less than the previous dollar.  Marginal contribution of marketing spend drops, and ROI declines until it reaches or even drops below the breakeven point.  Business plans never seem to account for this phenomenon; managers seem to think they can scale anything to infinity and never hit a wall.  Therefore the company is suddenly behind target as sales and marketing efficiency has inexplicably slipped from where it was this time last year.

So what do they do?  More lead gen!  I've seen this response more times than I can count.  Sure, we're losing money on every letter we send, but at least we can get to our revenue goal.  And you can buy some sales that way, but of course the lead generation efficiency just continues to drop and it gets more and more costly to artifically drive your growth.

The problem the villagers face is not that anything is wrong with their baskets, nor that they have too few of them.  The villagers' problem is that they don't have enough fruit.  They have gotten to the point where they're havesting the fruit as fast as the wood produces it.  If the village is to continue its growth, its inhabitants need more and better sources of food, not more and better ways of transporting food back to the village.  In the real world, the company is maximized on its demand realization initiative, and to continue to grow it needs to increase the amount of demand the market has for its goods and services.

So if weaving more baskets won't solve the problem, do the villagers just throw in the towel and starve?  Of course not.  There are lots of things they can do to produce more food.  The village can:

• Visit another wood.  Maybe there's another wood within walking distance, and maybe that wood has fruit in it.  Surely it's not as convenient as the wood we're used to, but it's better than starving.  Translation:  Expand into new markets where analagous target buyers will need your product.  Maybe that's a new geography or a new industry vertical or a different size of business.  Surely it will be more difficult than the market you already know, but it beats missing your financial targets.
• Start digging for tubers.  Maybe there are other things to eat than fruit in this wood.  Maybe the foragers can look for that also while they're out.  They might need new tools and training, but you can divert energy from making baskets to provide those.  Translation:  What else can you sell to these same people who are buying from you today?  You can still increase revenue if you increase wallet share rather than increasing the number of actual logos that buy from you.
• Plant fruit trees.  If the village looks far enough into the future, it can plant fruit trees so that in a few years it will be able to add them to its yield.  The villagers need to plan in advance, of course.  That requires forward-thinking management that isn't always there.  Translation:  Invest in developing your market well in advance of the time your growth starts to flag.  So often I see businesses fail in this way.  They're growing fast and making lots of money, and clearly they must be invincible.  Therefore, instead of pouring profit back in and building for the future, they suck it out as fast as they conceivably can.  Maybe the reasoning is that it'll be the next guy's problem to solve, not yours.  But if you plan on being around for the long haul, make sure you don't do something today that will stab you in the back five years from now.

People who work with me know this metaphor, and it's a convenient way to discuss where our focus needs to be.  Do we need to be adding baskets or fruit?  How much of each?  If we overinvest in baskets, they'll be half empty and we'll fall short of goal.  If we underinvest in baskets, we'll be leaving some fruit to rot on the ground.  If we do need to invest in fruit, are we looking for a new wood or trying to dig up some roots?  Does the sales team have shovels, and have we shown them what plants with edible roots look like?  Are we even sure we know how to spot one of those plants?  And lastly, how long is it until we've havested all the available fruit trees, and how far in advance do we need to plant new trees to they'll give us fruit by the time we need it?