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
