Tesla is One of The Greatest Marketing Success Stories of Recent Times
By: David Ferrara
Tags: Business, Investing, Finance, Technology, Marketing

Tesla is One of The Greatest Marketing Success Stories of Recent Times David Ferrara Follow Dec 28 · 5 min read

Tesla famously has zero sales and marketing budget yet has some of the best marketing of any company

Photo by Tech Nick on Unsplash

Have you ever seen an add for Tesla on TV? Heard one on the radio? Seen one on Facebook, or off to the side in your Google search?

Nope, that’s because Tesla does not do any paid advertising. Similarly, they don’t have a network of auto dealerships with ads all over your local TV, and clowns and banners and those dancing wind puppet thingies.

Let me tell you how absurd this sounded to me when I first heard it especially given my last job in the SAAS world where this ratio is king.

Sales and Marketing (S&M) Cost to Annual Contract Value (ACV)

I’ve sat in front of venture capitalist who insisted that in order to be a successful company we had to spend $1 in S&M cost for every $1 in ACV. Even better maybe we should be spending $1.50 for every $1.

Now, in case you’re not a finance person let me tell you how absurd this sounds when you first hear it. Let’s say you sell a product that cost you $0.2 cents for every $1 in revenue (i.e. you have a 80% margin). Then you spend $1 in S&M costs to earn that revenue.

Well then you’re already $0.20 cents in the hole.

And we haven’t even gotten to overhead costs such as rent, utilities, salaries of everyone else in your company other than the developers. i.e. management, finance, HR, product etc.

By the time that gets added in well you’re bottom line is you are spending $2 for every $1 you make. Sometimes you’re spending $3 or $4 dollars.

This is what companies do

Well, this is just how it works. Have you ever wondered how AirBnB and Doordash to take the two most recent big IPO lose so much money year after year? As well as WeWork, Uber, Facebook and well you name it, all of the Silicon Valley startups lost huge amounts of money in the early years.

This is standard practice. All big venture backed tech companies (especially SAAS companies) take this approach.

The theory is that

The money is recurring revenue so once you get that customer into the pipeline you will have that $1 of recurring revenue year after year for only spending $1 in year one. There is endless competition in these spaces and you have to hit critical mass (i.e. capture a certain customer share and hit a certain company size) before your competitors. So spend, spend, spend in the early years to hit that critical mass and then worry about profitability later.

I’ve always thought there is a third reason that nobody is ever willing to talk about. In order for a venture capitalist to get as much of the cap table of a company in their pockets and out of the founders pockets they need the company to spend as much money as possible.

i.e. “here’s more money Mr/Mrs. Founder, now give us more equity… this is just how it’s done, have to spend spend spend if you want to succeed… oops now we own 90% of your company”

How did Tesla get away with this? How did they grow to where they are without spending any money on marketing?

They didn’t fall into the above practices. In fact, they spent the majority of their costs building their product, innovating and building out manufacturing capacity.

There have been articles written about this walking through a ton of reasons. I just have two that I think really matter.

Free Marketing

The first reason is Tesla is a lot like Donald Trump. For whatever reason they just receive a ton of free marketing. The Tesla owners and probably even more critical Tesla stock holders are as to Tesla as CNN and MSNBC were to Donald Trump.

Superior Product

The second reason is because Tesla is the polar opposite of Donald Trump. That is to say unlike Trump, Tesla just has a really damn good product. In fact, not just damn good, but ridiculously good, game changing good. In fact a product that is so good it generates its own press.

Actually, let me just have Jay Leno summarize how good the product is and why he thinks Tesla will succeed.

Leno writes that he bought the Tesla because it is the fastest four-door car he could buy, and that it turned out to be electric was secondary. When he bought it, he wasn’t specifically thinking of the environment, so the reduction in emissions was just an added bonus.” by Jay Leno via www.tesmanian.com blog December 19, 2020.

The Chicken vs the Egg

Here’s the question everybody should have. How did this happen? I think everyone knows this general marketing concept…

“You can have the best product in the world, but if nobody knows about it, what good is it?” Phil Knight, Chairman Emeritus Nike

So, Tesla made a great product how did anybody know how great the product was before anyone bought one? And in case we forget, for a long time nobody did. It took a long time to get the first Tesla rolled out.

Well, that’s where the free marketing came in. See Tesla has a built in advantage in that they have access to perhaps the single greatest influencer in the world (and definitely the single greatest influencer on Twitter).

Of course I’m talking about Elon Musk who makes the news about once or twice a week due to a tweet. His latest one, that’s all over CNBC and all the rest of the news channels was this one about how he almost sold to Apple a couple years ago.

Elon Musk tweet screenshot from Author’s Twitter Account

So, that’s the answer. Tesla might not spend any money on sales and marketing. They just figured out how to get it for free. Elon built up his celebrity and reach and then leveraged that reach for free marketing valued equivalent to many millions if not billions of ad spend.

As a bonus now all of that money that most companies spend making sure you are aware they exist Tesla is able to pump into their product. Not a bad strategy if you can make it work.

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