Category: Customers

What people don’t get about Apple

Apple-1To the casual consumer Apple stands for high prices and their walled garden strategy or the Apple ecosystem. To those more sophisticated, Apple stands for the primacy of design.

But neither is correct, what sets Apple apart and has from Day One, thanks to Steve Jobs, is their relentless focus on the consumer experience.  That experience starts with elegant, cool advertising and leading edge retail stores.  When computer retail stores were dying Jobs launched Apple stores, which were widely derided by the cognoscenti at the time, but have gone on to be the leading retailer in the world as judged by the retailing metric of revenue per square foot. Rather than a typical retailer’s transactional focus, Apple stores focused on the customer store experience, inviting people in to see, touch, play with, and learn about its products in a comfortable, aesthetically pleasing place.

Once you buy an Apple product you will see the Steve Jobs’ touch in the packaging – every element of the package reflects the Apple ethos of clean and elegant design. Unboxing videos of Apple products have become a thing on YouTube, now emulated by fans of dozens of other products.

While other hardware companies touted specs – what we used to call speeds and feeds – Apple has always offered extreme ease of use and a very shallow learning curve for its products. Features and performance won’t be taken advantage of if you first present the customer with a clunky, hard to use interface. People who used to bill themselves as user interface(UI) designers now have gone up the value chain to become user experience (UX) designers. Apple’s influence has created an entirely new profession!

As Tony Fadell, father of the iPod and very close relative of the iPhone said, “At Apple Steve Jobs showed him how to go beyond designing a product; the key is to design the customer’s whole experience, from packaging to messaging.” Apple’s recent focus on services from Apple Music to iPay to their new credit care extends the customer experience beyond hardware and software to provide a seamless mesh of services to deliver the simple and elegant Apple experience post-product purchase.

Solving a problem for your customer is necessary, but not sufficient. Designing a clear and simple UI is also necessary, but not sufficient. What founders must do is to design their customer’s experience from marketing communications to product first use to tightly integrated services that add value to the product. It’s far too easy for founders to think they are on their way once they find a solution to a customer problem. But your journey has just started! You need to think through every element of the customer’s experience from marketing to using the product to solve a problem to upgrading to the latest software and services on offer and polish every elements of that experience so it shines brightly.

Why colleges and universities are great markets

 

Starship-Close-Up.jpgI almost always advise my mentees to start their ventures by tightly focusing on a specific market niche, dominating that niche, and then and only then, expanding to other market segments. I often cite Facebook’s go-to-market strategy as the best and most successful examples of this.

As most people know, Facebook was born in Mark Zuckerberg’s Harvard dorm room. What they may not know is how Facebook expanded after taking off like the proverbial bat out of hell (what, bats don’t like hell? Too hot?). I believe that Mark learned from the example of Friendster, the first social network, which died of indigestion – its infrastructure could not meet the demands of its many users, who eventually became frustrated and went elsewhere. Facebook first expanded to other Ivy League schools, then to top schools outside the Ivies, like Stanford. It was enabled to do this by insisting on .edu mailing addresses for site registration. It grew its infrastructure as it grew its market in higher education. Thus while there were occasional outages and other issues, they never rose to the level that caused Facebook to lose users. After proving out its technology with its handpicked schools Facebook then opened up its registration to anyone with a .edu address. It followed up by opening up to high school students. Only then did Facebook finally open up to the U.S. at large, though still insisting on a valid email address to register.

I spent about seven years in the higher education market, first with Addison-Wesley Publishing Company, then with Course Technology and when Course was acquired by Thomson (now Thomson Reuters) a three-year stint with Thomson. We sold products both for classroom use and for use the the IT departments.

What makes the higher education market attractive to startups and why should you consider it as your initial market?

The students

Estimates vary, but there are roughly 14 million students in higher education at about 4,000 institutions. So it’s a great target market for consumer products and services like Facebook, Instagram, SnapChat et al. But be aware that those 14 million students are highly segmented, amongst top tier privates, like Stanford; top tier state schools like Berkeley; other privates, large state colleges and universities, like the New York state system; and two-year colleges and vocational schools. It may make sense for you to target one of these segments, depending on your customer value proposition.

The great thing about students is that they don’t come with many burned in habits. So they are far more open to new products. They also are much less risk averse than their elders, so they are more willing to give new products a try. However, they have been lead to expect everything for free, or if not free, very cheap, like Spotify. The marketing channels to students are well established: whatever social networks are hot. Yesterday it was Facebook; today it is Instagram and WhatsApp. Keep you eye on what’s on its way for tomorrow.

Because you can easily target students by their institution, major or other demographics, students make for great pilot and proof of concept tests.

So what’s the downside? Other than expecting everything for free, students can be very fickle and are driven by a herd instinct and FOMO (Fear of Missing Out). However, if you are smart you can take advantage of all three characteristics with a simple and well-designed freemium business model.

Finally, you get roughly a 25% customer turnover every year as seniors graduate and a new class of freshpersons (?) enter. This constantly refreshing market is ideal for launching new and different products and services.

The institutions

Colleges and universities have tended to be late adopters of technology for classroom education and for administrative use. (I also worked at MIT as Director of Information Services back in the 1980s.) Obviously there are some exceptions, like MIT with its Project Athena. But until recently there tended to be a NIH (Not Invented Here) syndrome at top institutions. But countervailing the late adopter issue is the fact that colleges and universities are far more collaborative than businesses. While it’s true that institutions do compete for students within their segments, they are far more open to sharing than similar size corporations. And it is far easier to determine who the decision makers are, especially at public colleges and universities, than in private industry. At Course Technology we managed to market student editions of productivity software like the Lotus 1-2-3 spreadsheet, while selling the full professional versions to the IT departments.

There are a large number of academic associations and organizations like Educause, which focuses on elevating the impact of IT on higher education.  Partnering with these associations can facilitate marketing to the institutions, as we did with NACSCORP now  part of Indico Books.

Case study

For an excellent and up to date case study of marketing new products to universities see the TechCrunch article by Darrell Etherington Starship Technologies raises $40M, crosses 100K deliveries and plans to expand to 100 new universities. Starship invented the category of rolling autonomous sidewalk delivery robots, and to date, the company has made more than 100,000 commercial deliveries on behalf of customers. It just raised an additional $40 million to expand from its first university deployment to 100 university campuses over the next two years based on the strength of that pilot.

The thought process of Starship Technologies CEO Lex Bayer is well worth studying:

“When I came on board, I was testing a whole bunch of different go-to-market strategies,” explained Starship Technologies CEO Lex Bayer. “We were testing grocery delivery, university campuses, corporate campuses, industrial campuses, and we’ve actually seen tremendous traction on most of these environments. Our grocery business north of London, in Milton Keynes, is going exceptionally well […] But one of the experiments was to try university campuses. And I think as a company that’s a startup still, we have to always focus and have sequencing in terms of how we grow. And the university campus has just been pulling our business forward — not only our students pulling it, meaning there are more orders than the restaurant or the robots can keep up with and we had to add restaurants and add hours. And so we’ve seen signal from the students, but we’ve also seen signal from universities reaching out to us, and from the food service providers.”

Bayer explains very clearly why students are a great market for new technology:

“I think starting with the younger generation is always great for [adopting new products],” Bayer said. “Because so much of the way they see the world is the way the world can be; they’re not encumbered by all of the past and the way things were done before. And so when you present them with a better solution, they just use it and they say, ‘Oh, this is how things should be normally. This is the way things should be moving forward.’

Focus is the name of the game in startups as resources are very tight. And focus includes your customer set, if you try to be all things to all people you are likely to end up being nothing to anyone. For certain products and services the higher education market is a great place to focus first.

 

 

Focus on the customer’s job to be done

 

gogglesI’ve been swimming most of my life. I even got paid for it as a lifeguard for three summers, which financed my travels around Europe and the Middle East after I graduated from high school. So the Engadget article Form’s Swim Goggles are the first great wearable for swimmers caught my eye. If you are interested in wearables and augmented reality it’s a recommended read. But that’s not why I’m flagging the article on Mentorphile.

Probably the most common problem I see with founders is their adamant desire to boil the ocean. When I suggest they start off by boiling a cup of water and work their way up they often resist, as they believe that some competitor will swoop in and boil the ocean first. So I’m always looking for stories about successful founders who realized that focus was the name of the game. This article about smart swimming goggles is one:

I tested the Recon Jet back in 2015, saying that the smart glasses had the “potential to be better.” In part, that was because the device cost $700 and tried to be a platform, rather than a tool designed for a specific job or hobby. It was ostensibly designed for runners and cyclists, but could also run third-party apps and had a 2.1-megapixel camera. In trying to be all things to all people, it failed to do any of those jobs well enough to make it an essential purchase.

By comparison, Form’s Swim Goggles are a focused product that does one job very well. It tracks your swimming and relays those stats to your eye as you swim, and that’s it. The focus means that it’s got no unnecessary extra features, it weighs very little and its battery lasts for ages. And that means a lot for capable swimmers, who don’t want to carry around bulky devices that could hurt their times in the water.

Engineers love building things and usually they like inventing new features as well. This leads to the phenomenon of feature creep as new features get added to the original specification and the product becomes unwieldy. How do you avoid this? By starting your product development process with customer discovery, interviewing dozens of prospective customer to better understand what problem you are solving and what features are essential to solving this problem.

And don’t ask customers if they would like feature X or Y! Because they will say “yes,” and think “why not?” This is where agile development and the Minimum Viable Product come in. Your need to start with a very lean product that solves not three, not two, but one big problem for your customers. Features should only be added to your MVP based on customer demand, not engineering invention.

Once you have found your niche and dominated it you can start to add new features to box out competitors and develop stronger engagement with your customers, but not until you have that elusive product/market fit.  Startups never have enough resources; by focusing on only a minimal set of features that satisfy customer needs you are making the best use of those limited resources.

Put all your wood behind one arrowhead, as Sun Microsystems founder Scott McNealy used to say.

By focusing you will do one job for the customer and do it well. For extra credit, read the Harvard Business Review article Know Your Customers’ “Jobs to Be Done” by Clayton M. Christensen et al. Here’s the nut of the article:

After decades of watching great companies fail, we’ve come to the conclusion that the focus on correlation—and on knowing more and more about customers—is taking firms in the wrong direction. What they really need to home in on is the progress that the customer is trying to make in a given circumstance—what the customer hopes to accomplish. This is what we’ve come to call the job to be done.

What’s the difference between customer satisfaction and trust?

Screen Shot 2019-07-12 at 9.21.37 AM.png

I have to admit to being a fan of Elon Musk and Tesla (not so much of The Boring Company or SpaceX). I always root for the underdog and there have been several notable auto industry entrepreneurs who went up against Detroit, including Tucker and DeLorean.  Both, like others before them, while critically esteemed, couldn’t compete in a capital intensive business against entrenched competitors.

But Elon Musk already has surpassed both men in influence and accomplishments, though the financial status of Tesla seems precarious. Musk continues a non-stop stream of innovation and outrageous Twitter tweets. (If only John DeLorean had Twitter! Watch for the upcoming movie about him, Framing John Delorean starring Alec Baldwin.)

But following Tesla is more than just following my pattern of rooting for underdogs; I’ve learned a lot of things about innovation and management from studying Musk and Tesla.  For example, today’s article in Forbes entitled Tesla Motors Tumbles In Key Trust Measure by Jack Nerad. First of all, while familiar with the auto industry’s measurement of customer satisfaction, ranging from Consumer’s Reports to J. D. Power, I had no idea that there was an outfit reporting on customer trust in auto manufacturers. But there is, AMCI, which just released its 2019 Trusted Automotive Brand Study (TABS). If you are interested in Tesla, read the full article, but what really interested me was Jack Nerad’s disquisition on customer satisfaction versus trust. There’s insight that’s truly valuable for founders buried in this article about Tesla.

One factor that hurt customer trust in Tesla has been its pricing. Thousands of people are still waiting for the Holy Grail, the much touted, but non-existent $35,000 Tesla model 3. It’s worth quoting the dictionary definition of trust:

trust | trəst | noun1 firm belief in the reliability, truth, ability, or strength of someone or something: relations have to be built on trust | they have been able to win the trust of the others. • acceptance of the truth of a statement without evidence or investigation: I used only primary sources, taking nothing on trust. • the state of being responsible for someone or something: a man in a position of trust. • literary a person or duty for which one has responsibility: rulership is a trust from God.

Note that reliability and truth are the keywords in the definition. Tesla has violated trust by its unreliable pricing and frankly, false advertising, with respect to the model 3’s pricing. But doesn’t Tesla rate highly in the Consumer Reports customer satisfaction survey? It has, but quality problems associated with the steep ramp up in production of the model 3 has also eroded Tesla’s customer satisfaction ratings. But what is the difference between trust and customer satisfaction and how do they relate? Heres what Ian Beavis, AMCI Global’s chief strategy officer told forbes.com in an exclusive interview:

Beavis sees trust as being of a “higher order” than satisfaction, a metric that includes satisfaction but goes far beyond it. Because customer satisfaction has been scrutinized for decades now, most brands are fairly good at executing on it, but the AMCI strategist now believes satisfaction is a cost of entry. Satisfying people is just not enough. Based on the hypothesis that emotions beyond satisfaction are the real drivers of customer loyalty and brand enthusiasm, AMCI identified trust as a facet of the buyer-seller relationship worthy of study. And the study revealed that developing and maintaining customer trust is a very, very powerful thing.

If I heard this rather vague comment from a mentee my first question would be, “Can you give me a real world example?”  And Ian Bevis not only gives one, but two examples. And he uses one of my favorite means of helping an audience understand a new concept, analogies:

“The analogy I use about satisfaction versus trust is is the absence of illness doesn’t mean a person is fit or healthy,” he said. “Another analogy I’d use is you don’t get a serious relationship because you’re satisfied with dating someone. It takes love and trust to build longterm relationships.”

So it’s clear from these two examples that trust is indeed a higher order metric than customer satisfaction. The term that doesn’t get defined in the article is “brand.”  I define brand as a product or company’s distinctive identity that is a strong competitive asset; the stronger the brand, the higher the level of trust. For example, I’ve been an Apple customer since the days of the Apple II, and Apple has earned my trust through the brand identity of simplicity, elegance, ease of use, and innovation. I’m not always a satisfied customer of all its products, for example the Apple Cube, was an elegant looking flop. But their values and reputation are so strong that they can quickly recover from the occasional misstep in customer satisfaction.

What’s missing from the article, perhaps as an exercise for the reader, is how do you measure trust? Customer satisfaction has been measured for years by surveys, accepted as valid and reliable. I’ll be looking for articles on how to measure trust. In the meantime I would venture two metrics:

  1. Pre-orders of new products – Tesla must have set a world record with its number and dollar value of Model 3 pre-orders. Planning to buy a product before there are any reviews or even customer word of mouth certainly represents trust.
  2. Used product value – the higher the used product value the greater the trust in the key word: reliability.

Do you even measure trust? And if so, how?

What makes for a successful business freemium model product?

freemium

Interest in the freemium model, where the venture gives away one version of its product in order to up-sell those users to a more feature-rich paid version, has had its ups in downs in the business market. But with freemium model companies like DropBox, Zoom, and Slack going public it’s definitely on the upswing now.

With the help of the article 7 markers of a viable freemium product by venture capitalist Matt Holleran on VentureBeat.com, let’s look at what will help founders be successful using the freemium business model.

1. The user’s first experience with the product is easy and awesome

Ease of use and simplicity are paramount to keeping technical support costs to zero and eliminating one major source of friction in product adoption. If you have a complex product with a steep learning curve that requires training, freemium is not for you. And you need to launch a Minimal Remarkable Product, not a Minimal Viable Product. A remarkable product with a flat learning curve has the best chance of going viral.

2. Rely of WOM (Word of Mouth) and viral marketing

Customer acquisition is the number one variable cost in virtually all tech companies in the enterprise market. By relying on WOM and viral marketing, millions of dollars can be saved on traditional marketing, dollars which can then be spent on converting free users to paid users.

3. Your product is not single-user only

Products like Slack and Zoom are inherently multi-user, in fact the value of Slack in particular goes up with the size of the active user base. Multi-user apps have two benefits: one, they become attractive to teams and thus can charge a higher price; and two, these products, like Zoom, can be inter-company, not just intra-company, thus selling themselves as users from one company invite another.

4. The freemium model should be built-in, not slapped on

If you plan on using the freemium model you need to plan for it before you start product development. First how will you build virality into the product? Second, what features, functions or even performance will be included in the paid version but not included in the free version? This decision is the core and the art of the freemium model. If the free version is not useful on its own you will never have the large user base needed to convert to the paid version. On the other hand, if the free version is so useful most users don’t see a reason to upgrade, you won’t generate significant revenue. This is where the need for customer discovery, A/B testing, and lots of trials are investments that will pay off.

You also need to make it virtually painless to upgrade. That means keeping the upgrade to the paid version very simple; don’t confuse users with a plethora of payment plans – for a subscription offer monthly or yearly payments, period.

5. Don’t rely solely on the freemium model – it’s not a panacea

Products like Slack, Zoom and DropBox are all very solid products that filled an unmet need. While their freemium business model no doubt drove rapid adoption, these products could have succeeded with a different business model, though perhaps not as quickly.

6. Study the winners and the losers

While there is a lot to be learned, especially from public companies like Slack and Zoom that have to disclose much more about their financials and operations than private companies, don’t restrict yourself to companies that have gone public or been acquired. Since freemium companies offer a free version, your only cost of studying their products will be company time. Remember as Picasso said, Good painters borrow, great painters steal. However, you can’t simply ape a winning freemium formula from another company. Your freemium model needs to be customized to your market and its users.

7. Understand the bottoms-up sales process

The freemium model stands the typical business sales process on its head. Users first adopt the product because of its fast on-ramp and value provided to them. They then exert upward pressure on the economic decision makers to upgrade from the free to the paid version. Help them out! Provide case studies, testimonials, webinars and other ways the economic decision makers can quickly and easily see and buy into the reasons to upgrade. Don’t try the standard field sales force, face-to-face selling process with the economic decision makers – that’s the antithesis of the freemium model.

8. Establish and track your metrics

Freemium companies must set goals for upgrades – what percentage of users must upgrade for you to break even, for example. You should track actual vs. projected on no longer than a monthly basis. Collect as much data as possible and establish what is the profile of your ideal customer. What drives customer engagement? What works best to incentivize upgrades to the paid version? And be careful of churn. Winning the customer is winning the battle; retaining customers is winning the war.

Freemium is not for every company nor for every product. If you can’t follow a majority of these best practices then freemium is probably not for you.

So you want to build a platform …

platform.png

Becoming a platform seems to be the holy grail of developers these days. Despite the challenges of a two-sided market, which virtually doubles your customer acquisition costs and development complexity, there are so many success stories out there, such as Apple’s App Store, that developers see creating a platform as the path to world domination! Mark Zuckerberg realized this early on, opening up his social network to third party developers, and supporting them with tools and tech support.

So when I came across the article, The 7 Key Principles of Platform Design, sub-titled To design Strategies that mobilize, in the XXIst Century, I read it with interest and decided it merited a blog post.

Platform Design Principle #1 — Recognize the potential that grows at the Edge

I was introduced to this principle years ago by computer scientist David Reed. This is the number one principle for a good reason – it’s the most important:

Recognizing that small entities (individuals, teams, small organizations) have today an increasing potential to impact their own life, create powerful products and services, transform systems, is key to understand the platform model.

Platform Design Principle #2 — Design For Emergence

This is where a lot of founders stumble. They think they can manufacture an ecosystem. Not. Ecosystems grow organically. As a developer you may tend to start from your capabilities and try to design your platform from the outside in. Again, but no. You need to figure out how your capabilities can help an existing ecosystem grow and develop.

Platform strategies need to be designed to help an existing ecosystem to emerge, thrive and work better: platform design is the equivalent of plugging wires between electric potential. Where a potential exists, the current will flow.

Platform Design Principle #3 — Use Self Organization to provide Mass Customization

The concept of mass customization, like the principle that growth of network is at the edge, is something I came across last century. In fact I read a book entitled Mass Customization. The principle of getting exactly what you wanted at a great price enabled by scale is very, very powerful. As self-service was the most powerful business principle of the 20th century, I believe that personalization is the most powerful business principle of the 21st. A key principle is reducing transaction costs through organization.

Platform Design Principle #4 — Enable Continuous Learning 

As I’ve written elsewhere, learning is job 1 for founders.

Learning must be both competitive (with peers trying to outperform each other) and collaborative, through mentoring and tutoring: helping each other works if there’s a promise of a broader market. To really learn, peers in the ecosystem need to also be allowed to give space to their true passions.

Platform Design Principle #5 — Design For Disobedience

Platform designers need to let the participants at the edge innovate.

This is the way platform shapers embed the Innovate-Leverage-Componentize cycle: first let the ecosystem dictate new expectations, then institutionalize them and leverage them (grow them at scale), within time make them components that the ecosystem can use, to invent something new.

Platform Design Principle #6 — Design For Interconnectedness

Relationships and interactions amongst the peers on the platform are the key business elements. The platform builder needs to design for both producers and consumers of value. Think YouTube as a great example of a platform where great care is taken for both side of the transaction: the producers/uploaders of video and the consumers/watchers of these videos. The sum of the value of an interaction must exceed the value of its individual contributions.

Platform Design Principle #7— Let go the identity, identify with the whole

A brand letting go of its identity seems intuitive. After all, what is a brand but a well known and coherent business identity? But the goal of a platform is to get the the participants in the ecosystem to identify more with the whole – the platform – and less with the platform provider. Think YouTube, not Google – owner and operator of YouTube. Or in VR, think Oculus, not Facebook. This enables smaller players to play a role in the ecosystem.

For would-be platform builders I strongly recommend you not only read this article in full but explore the home web site of the authors: there you will find a rich repository of wisdom about building and growing platforms.

It’s all about the experience!

experience

Here’s a great quote from Maya Angelou that all founders should pay attention to when pitching or serving any potential stakeholder in their business, including customers, investors, partners, and staff:

I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.

Whether it’s the design of your product or your pitch deck, it’s all about the outcome: the customer or audience experience.

So what is the customer experience? Here’s the good, the bad, and the ugly:

The Good: Interest, Excitement, Imagining, Engagement

The Bad: Boredom, Overload, Distraction

The Ugly: Offended, Angry

THE UGLY

Let’s start at the bottom with the worst case, the Ugly. I’ve yet to see a pitch or customer experience that made anyone angry, but I’ve seen occasions where the audience gets offended. Today that is most likely due to an insensitivity to issues of diversity. Just one example from my experience. In the course of trying to come up with a name for our startup (which we decided not to pursue) my friend Peter and I played the name game. And for five minutes we thought we had a great name for our startup which would provide mentoring and coaching to startups: Graybeard, connoting that we were old, but wise.  But all it took was one email to a (female) friend who suggested that we really should change the name as it meant wise old men. We were not only leaving out half the population, we would no doubt be offending even a higher percentage. So much for that name. But the incident did cause us to think more about diversity, not just in our company name, but in the service we planned to provide.

THE BAD

Unfortunately I’ve seen many pitch decks and planned sales pitches that fit all too well in this category. They may have even hit more than one check box – even all three! Try running your investor or sales pitch by people who have no familiarity with what you do, and preferably only a weak social connection. While you give the pitch have a partner observe the audience – which can be more than one person, preferably at least two or three. Do their eyes wander? Do they yawn? Do they lean forward in their chairs? Do they lean backwards? Do they consult their phone? This can easily happen when your pitch is dense with business or tech jargon; when you basically read your slides; or when your explanation of your product is abstruse. Unlike people who are angry or offended and may spread bad word of mouth about you, the Bad will just result in people failing to engage and usually doing nothing. If so, you have wasted your time and their’s. That’s why it is so important to go through the “out of town tryout” process before taking your pitch to “Broadway.”

THE GOOD

If your audience, be they investors, customers, employees or partners, have a great experience you will get what you need out the meeting: engagement. That means you have not only captured their interest but perhaps the imagination also. The best way to discern this if by the number and quality of questions you audience asks of you. Because if your audience is not engaged they will not act. And it’s action you want: getting the next meeting, getting a term sheet, agreeing to join your company, entering into a partnership agreement, etc. Those who have had a great experience will not only act, they will also spread the word about the great experience they had with you.

So here’s the progression: Attention => Interest => Imagination => Engagement => Action.

You may wonder what imagination is doing here. What I’ve found is that the most successful product pitches I’ve given have engaged the audience to the extent that they start imagining how they would use my product themselves or even coming up with new features they imagine would be useful to them.

And the customer experience applies equally to using your product: Is it attractive? Is it easy to learn? Is it simple? Is it responsive? Is it forgiving? Is it robust? and most of all, Is it useful?

So whether you are building a presentation or a demo keep in mind that all those slides or all those features are simply a means to an end: a great customer experience!

 

Is the Net Promoter Score for you?

net-promoter-score

Many of the startups I mentor are so early stage they don’t even have customers – but for those who do and those who will, consider the Net Promoter Score (NPS). It seems the bigger the company the popular NPS is: Best Buy, Delta, American Express, Intuit, United Health, IBM  …

The title of The Wall Street Journal article by  Khadeeja Safdar and Inti Pacheco The Dubious Management Fad Sweeping Corporate America is misleading, as are many headlines in our click-bait culture. The sub-title is somewhat more accurate: NPS—or net promoter score—is a measure of customer satisfaction that has developed a cultlike following among CEOs. It also may be misleading. The authors actually do a good job of presenting  both the pros and cons of NPS, but balance doesn’t generate clicks.

The beauty of NPS to me is its simplicity. It consists of a single question for customers:

On a scale of 0 to 10, how likely are you to recommend the company’s product or service to a friend? The survey usually includes a follow-up question asking customers to explain their ratings.

NPS is based on the premise that every company’s customers can be divided into three groups. People who answer 9 or 10 are “promoters,” or loyal enthusiasts who keep buying. Those who give a score of 0 to 6 are “detractors,” or unhappy customers. Those who answer 7 or 8 are considered “passives,” satisfied but easily wooed by competitors.

However, recent surveys show no correlation between NPS with revenue nor predict customer behavior better than any other survey-based metric.  Several unquoted companies maintain that NPS does in fact correlate with revenue growth. Though the fact that these NPS users decline to be quoted speaks for itself.

There are two technical reasons why NPS might not always correlate with profit or other measures of corporate success. One is that the score is derived by subtracting the percentage of customers who are detractors from those who are promoters, which increases the unreliability of the survey by conflating two variables, each of which has an error rate. Secondly, research has been criticized as focusing on too small a sample The latter may well be a red light for startups whose customer numbers are a rounding error for the large companies mentioned in the WSJ article.

One criticism of NPS seems valid to me: that organizations tend to concentrate far too much on their NPS score and not enough on applying insights from the survey to improve their customers’ experience.

So what’s a founder to do? First I would not bother with NPS until your customers hit four figures. Given the low response rate to surveys in general you need a large customer set to ensure that you get enough responses to be valid. Secondly, you need to install other measures of customer satisfaction so you are not wholly dependent on NPS. For ecommerce retailers such measures may include rate of returned merchandise and number of complaints handled by customer service. For subscription services, churn is probably the most important metric. You can start by reading the post Identifying What to Watch: 14 Key Performance Indicators That Matter and instantiating some of these metrics. You can then develop a scorecard that includes NPS but also other measures. This scorecard needs to be filled out regularly – perhaps monthly for early stage companies and quarterly for latter stage ventures. Founders need to resist the impulse to tinker with NPS or your metrics, as it is important to have baseline data and be able to measure projected versus actuals over time.

 

Users may discover unforeseen uses for your application

 

Screen Shot 2019-04-20 at 6.27.40 AM.pngThere are a lot of articles about Pinterest now given that they have just gone public. Like many ideas, I’d seen it before. In fact I advised a company that created a digital pinboard many years before Pinterest, but they confined it to use by teachers for use in the classrooms to post images related to what they were teaching! And of course there had been other predecessors to Pinterest, if you just looked at their main benefit as being the ability to save web sites of interest.

But Ben Silberman’s insight was four-fold: one, value for users was not simply saving web sites of interest; two, with the rise of smartphone photography people were becoming more and more interested in images, not text; three, people are driven by aspirations and the web is full aspirational images: fashion, art, consumer electronics, cars, etc;. and finally very large numbers of people like to collect things, but cost is a limiting factor for most people. But with Pinterest there was no cost, images are free! Pinterest, like Houzz, became a site for collecting one’s aspirational objects.

These benefits drove the first wave of growth in Pinterest, but what I believe happened is that users discovered higher order uses for Pinterest. Erin Griffin in her New York Times article I.P.O. Day for Pinterest and Zoom Ends With Shares Sharply Higher does a great job of elucidating the primary current use cases:

Pinterest is not a social media app for interacting with celebrities or broadcasting one’s life, the company said in its I.P.O. prospectus. It is meant to be personal instead. Its 250 million monthly active users, or pinners, use the site to plan important aspects of their lives, including home projects, weddings and meals.

The focus on personal growth and planning, rather than on comments and interactions with others, has helped Pinterest sidestep much of the bullying, toxic behavior and disinformation that have plagued other social platforms in recent years.

Thus Pinterest went from a nice to have (pinning stuff you pined for) to need to have (a great tool for personal growth and planning); from vitamin to pain pill.

So what is the takeaway for founders? If you can succeed in building an application for enough users the users themselves may well discover new uses for your app or platform you may never have envisioned, uses that add tremendous value to your business.

 

 

 

Not all customers are created equal!

customer

To the struggling startup – which is redundant, as all startups struggle at some point – any customer is a great customer. Any port in a storm, right? After all management guru Peter Drucker said “The purpose of business is to create a customer.”

Customers represent cash – the lifeblood of any business. But beyond that they represent validation and Le mot du jour – traction.

But startups need to learn what a successful, experienced sales person knows: not all customers are created equal. For that reason sales reps qualify prospects, and founders – most not being experienced in sales – must learn to do so as well. Lets define terms for a start. A customer pays for your product. A prospect is a potential customer.

For a startup your prospects should:

  • Not demand customization of your product, or you will end up spending time implementing features that aren’t on your roadmap, consuming valuable resources that should be devoted elsewhere
  • Have the potential to be repeat customers. There are two types of business relationships: transactional and relational or consultative. Transactional relationships are like those awful restaurants on turnpikes – they don’t care if you are one and done, as the odds are they wouldn’t see you again, even if they did provide better fare. But if you can build a relationship with your customer, then they will want to come back to you to purchase services or in the case of consumables, to purchase your product again and again. Preferably on a regular basis. Recurring revenue is the holy grail for startups. (Which is why the subscription business model is so desirable.)
  • Have the potential for up selling. Up selling is when you sell your customer more expensive products and/or products that provide a better gross margin.
  • Don’t cause you to lose focus or divert you from your mission. One common problem I see, and I’ve been there, is that startups tend to be opportunistic, not strategic. Meaning they exploit a chance offered by immediate circumstance without reference to their business strategy and plan.  Startups need to be strategic. Customers should fit with your long-term plan and company mission.
  • Have the potential to act as a reference or provide a testimonial. This is primarily a B2B value. No one likes going first. The typical  initial question from the enterprise prospect is “Who else is using your product?”  You need customers who are willing to be references for you, to talk with prospects about why they bought your product. Ideally your customers would provide you with testimonials, for use on your web site and or in a press release.
  • Offer the opportunity to sell to other divisions or subsidiaries. Again this is an enterprise sale value.  With startups you often start with one division or department or even just one team. But your goal should be leveraging that sale to many other sales within the company. Introductions by your customer to other prospects within their company are very valuable.
  • Provide valuable feedback on your product. The job of the founder and the venture is to learn.  Thus customers who will help you learn by providing feedback on what’s good and not so good  about your product, what features they would like to see in new versions (not that they need to see for a sale!) and even feedback about your sales process, are far more valuable than customers who are just  interested in a plug and play product and have no feedback for you.

Profile your ideal customer, in writing! And make sure that anyone who is at all involved in your sales process can recite that profile fluently, and more importantly, can say no to prospects who will suck up valuable resources or divert you from your path. Of course, not all customers will have every desirable characteristic, especially if you are in a consumer business where driving necessary volume may make sales more transactional than relational.  But a goal of a startup is to measure return on investment, be that time or money. Thus you need to focus on customers who will maximize your return, not simply sign a purchase order. The cost of customer acquisition must be a fraction of customer revenue – that’s your gross margin, which must be healthy.

%d bloggers like this: