Follow These Three Rules to Make Sure You Retain the Right Customers
Because if you end up the wrong ones, they'll kill your business.
Executive director, Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship, Illinois Institute of Technology
Ideas for new businesses are a dime a dozen; they change about as often as the weather and just as radically. If you thought fashion was fickle, it's got nothing on A.I., blockchain, or cannabis. They're the ABCs of awesomeness, but only for a moment. In today's startup world, you're impossibly hot one day and a glacier the next. Nothing's "the future" for long; the present has never felt more temporary. The trick is to catch the gravy train and hop aboard before it leaves the station. The market doesn't care that much where things are headed-- up or down doesn't really matter. For the money men, there's a train every day, leaving either way and a whole world of places to go.
Funding for new ventures isn't much different. It comes and goes. Sometimes it's fast and easy and appears abundant and sometimes it's flat-out impossible to raise another nickel just when you need it the most. A few bucks to keep the doors open and the story alive is harder to come by than a fortune when things are fat and happy. The money is always there, but the pockets and the velocity of movement change, and you quickly learn that money doesn't really care who makes it. The trick with any early-stage investment is to take the cash when it's offered, take as much as you possibly can, and don't be a pig on valuation. A part of somethin' is always better than a whole lot of nothin'.
If and when you make it and until you're up for sale, the interim valuations and all that fancy paper money don't mean squat. That's just a bunch of people living in a filtered bubble, talking to themselves, trying to make themselves feel better and smarter than the rest. But if you blow the chance to build a war chest before the war begins, your business could be over before you really get going. There's only one fatal error a startup can make: running out of money. Everything else (albeit over time) can pretty much be fixed with a check.
Teams and new technologies are going to be built as you evolve and hopefully, they both get better over time. There's always a risk that some competitor's new tech will jump over yours and technology teams - especially on the coasts - aren't exactly known for their longevity. But the one thing that no startup can ever succeed without - the absolute sine qua non for survival - is customers. And not just any assortment of purchasers. If you don't have a critical mass of the correct customers, you don't have a viable company or much of a chance to succeed.
Too many startups make the mistake of taking all comers. They think that any customer is better than none. They don't understand that it's important, right from the start, to focus on attracting, connecting with, and above all retaining the right customers. You need to get it right at the beginning - before you think about scaling and growing the business - because you're trying to build a replicable model that makes sense and profits in the long term. Every business with a brain is focused on the lifetime value of customers and not on the quick hits and the inflated customer acquisition numbers that mean nothing when they melt away after the incentives, discounts, bundles and other props disappear. Businesses succeed because they give their customers long-term value and benefits, not short-term price breaks.
But they also need to have a business model that can successfully serve a growing number of customers in a consistent and satisfactory manner. If only the CEO or a genius can sell your product or service; if it's so bespoke and personal that you'll go bankrupt trying to build a base of happy clients; or if the costs of delivery consistently exceed the price anyone's willing to pay, you're never gonna make it up in volume. And, as often as not, the customers you think you have aren't going to stick around either. Remember that, ultimately, good business isn't about what you're selling; it's about what the customers are buying.
Churn is beyond costly, it's killed more companies than just about anything else you can imagine. You waste enormous amounts of time and money on people who don't matter; your own employees get confused, depressed, and start to take it personally; and you find that you're trying to hold on to hopeless causes or convince customers of something they didn't buy into in the first place. It's simply too hard and not worth the effort or the price you end up paying.
The key to corralling the right customers from Day One, to making that sure you get off to a strong start on an aggressive retention program, is a 3-step process: (1) understanding the customer attachment characteristics of your particular industry; (2) appreciating your own customers' specific kinds of connection to your product or service; and (3) making sure that your own actions continually strengthen and reinforce your relationship with each individual customer. If you don't understand and focus on the unique nature of the customer engagement that you're trying to build, you can waste a tremendous amount of time and money paying attention to the wrong behavior drivers and levers. This is a complicated area, but here are a few headlines to get you thinking about how these buckets make sense for your own business.
1. Industry-Specific Customer Attachment Characteristics
When we look at different industries, there are typically a few aspects of the customers' behavior that can significantly influence the degree of attachment each customer has: (a) how often are the purchases made; (b) how frequent are the other interactions with the customer; (c) how important is the purchase - financially and emotionally -to the customer; (d) how much differentiation is there in competing market offerings; and (e) how easy is it for customers to switch to another vendor. Each of these attributes impacts your approach and strategy.
2. Customers' Connections to Your Offering
When you look more closely and try to get inside each customer's head and their connection to your product or service, there are also distinct categories to consider. The best and most loyal customers have an emotional connection. They're convinced believers who know they made the right choice and they're the most likely to stick around. The next group is basically too lazy and comfortable to look elsewhere-- unless you give them some reason to move. You don't want to take them for granted, but in most cases, they're not a big risk. Cable subscribers are an interesting subset of this group. Cable TV today is what we would call a "grudge buy." You're not that happy and you feel that you're being ripped off, but for now it's too much trouble to switch. But switching costs are constantly shrinking, which is why the fat and happy days of cable are coming to an end. Once the dam bursts, the flood of cable-cutters will be unstoppable. Another, even bigger challenge are the "smart" customers who bought your product or service because it made sense at the time, but who are always scanning the horizon to make sure their choice still makes the most sense for them from a price and performance standpoint. These are the most critical folks to hang on to. And they require the most attention and service. Finally, there's a cohort of customers on the bubble because of changes in their lifestyle or circumstances, which you can't control or avoid. You can, however, anticipate their behavior and head them off before they leave.
3. Steps to Lock In and Increase Retention
As you might imagine, the way you address the concerns regarding each customer cohort is going to differ dramatically-- and that's probably a lengthy subject for another post. But in the simplest terms, you need to double down on what's driving the desired behavior. So, for emotional customers, it's all about highlighting how special their choices have been and how they're part of an elite and highly-selective group. For inertial customers who are content to be left alone as long as things are working, it's all about friction-free delivery, ease of use, and automation to speed up the pace of any necessary interactions. For your smartest and most analytical customers, you've got to keep raising the bar, improving your products and services, and communicating constantly, but painlessly with them so you're always "top of mind" when they're ready to buy or reassess. And finally, for the customers who are aging, starting families, moving to the suburbs, etc., if you're smart, you make it your business to know who they are and where they're headed. Your job is to get there before they do with new offerings that meet their changed demands and desires.
If you do this all right, you end up in a wonderful place where you get to sell through your customers rather than to them. Because they become an army of enthusiastic and authentic endorsers as well as increasingly valuable and loyal for a lifetime.
PUBLISHED ON: FEB 5, 2019