Tarun Babbar, Author at ProductNation

01/06/201601/06/2016

Why did I love this Saturday?

I usually start my weekends with an intense workout regimen. This one was also quite intense but in a very different way. I attended the 71^st edition of ‘Playbook Roundtable’ on Saturday the 28^th of May, 2016. Incidentally, this was my first time at any Playbook event. From the time I received the invite, I just had one question: how should I prepare to give it my very best? Little did I know that rather I would get the very best from this infectiously energetic tribe of people we call entrepreneurs on earth.

The event began at 11 A.M. with the first sip of cappuccinos and a brief introduction by everyone. We had 12 entrepreneurs (plus their co-founders), who had come to spend this Saturday to learn from one another. Besides passion, everyone was running high on desire to solve meaningful problems by using technology and change our world forever. While few of them had already (successfully) launched a product and were now facing next level growth challenges, many were still somewhere in MVP stage, figuring out product-market fit.

I was amazed to see an eclectic mix of problems these start-ups wanted to solve – beyond many industries and businesses. We had a renowned Fintech company making peer-to-peer banking easier with its latest product, a B2B engagement platform that helps convert one’s clients to promoters, a knowledge management product that makes life easier for customer support staff, a marketplace for those who want custom-tailored clothing minus hassles, an employee engagement platform that makes it easier to share ideas and innovate bottom-up, a mobile push notifications platform which has a unique ‘do it from your notification itself’ feature, an AI-based data cleaning & organizing tool, a personalized curated video platform which helps discover ‘still hard to find videos’ at YouTube, a collaboration platform which seamlessly works over Gmail, an education portal that aims to make multiple forms & cumbersome application process around admissions redundant, an open source ERP for small businesses with an enviable community across the globe, and a managed marketplace for getting super-affordable flash presentations. Phew, that was a lot… But that’s how best Saturdays are made!

The format of the event – with a handful of participants and an intimate setting over a roundtable, literally – allowed for an easy interaction for everyone. After hearing elevator pitches by everyone, we all were kicked to get into the next phase of our day – the demo!

Every entrepreneur had a total of 30 minutes to give a brief demo and then get into question-answer session, which was a unique opportunity for everyone. While a lot of questions satisfied curiosity of the audience, many entrepreneurs actually took on the audience by asking difficult questions that were giving them sleepless nights. “Almost everyone giggled when this young gentleman innocently asked – how do I reduce my cost of sales? And one response came – don’t ever sell to this segment!”

While everyone learned a thing or two, I noticed recurring themes in advice and insights that most of us agreed with. I call those timeless pieces and they are:

Articulate the problem you’re solving really well (for whom, how, and why)
Keep it super simple during MVP stage
Speak to users, don’t assume
Your product is super cool, but maybe for some other segment!
Solve one problem really well for just a handful of users before conquering the world.

We concluded the session with everyone summarising their one or two key takeaways from these awesome 6 hours spent together (damn, nobody mentioned expanded LinkedIn network!) For me, more than anything, it was a humbling experience to be with these ultra-human beings for I’d like to be like them, some Saturday!

30/05/201629/05/2016

Identifying King Customers and building your business around them isn’t that easy!

“Throughout history, it has never been easy to identify a deserving king!”

I attempted to address this in my previous post, in the context of customer strategy. I proposed Customer Lifetime Value (CLTV) as the key metric to identify king customers. However, I’ve found this philosophy extremely difficult to follow, which is why I wrote this post. It’s okay if you have not read my previous post. You will still benefit from this one, as you will understand why you need to chase CLTV as you build a sustainable business to attract lot of king (loyal) customers!

Business around CLTV, why?

It’s simple. If your business is on an upward trajectory, then CLTV for most of your customers will also be going up. And if CLTV is going up, then almost certainly, most other important metrics of your business – sales, customer acquisition or repeat rate, order value, and profitability – would also be improving. But the vice versa doesn’t necessarily happen. Don’t agree? Read the footnote for few examples & dialogues with self!

Okay, is it difficult?

Yes, somewhat! You never run out of uncertainty & difficult questions if you are in a high growth business! Now, add these to the list too 🙂

a) How do I calculate CLTV?

This post by Patrick Deglon on calculating CLTV captures it really well. You need to make sure you include elements of profitability, and not only sales, in CLTV. And if your business changes very fast, then consider ways to implement a predictive CLTV based reporting infrastructure. Remember, what helped you increase CLTV of your customers in the past may not help now. I have also come across Custora, which seems to have developed a decent solution for predictive CLTV reporting.

b) Are the ones with highest CLTV the only king customers?

Not always. History is quite clear – kings who became kings because they made efforts were much better than the ones who merely inherited the title. So, always ask, is it something you did or something just happened? If you don’t attract sufficient number of high CLTV customers, look at realigning your product (including any customer touch point) and marketing strategy.

c) How should I treat customers who have high CLTV just because of one transaction?

If such customers typically don’t repeat, then don’t lose any money on them. Just ensure that they feel delighted while interacting with you at any point during the transaction. Simply speaking, they shouldn’t have a reason to avoid you. However, you definitely need to design a more aggressive (CRM) strategy for customers who are likely to repeat. By the way, you might also consider ways to discount CLTV for lower repeat rates.

d) What if customers aren’t yet ready for a royal treatment?

If you think that investing $$$ on CRM strategy won’t significantly move the needle, then do lots of small experiments on cohorts of users you want to grow; find out what really works. In a high growth, uncertain business, customer loyalties may appear elusive but aren’t absent. Just like at times of war, kings knew who their friend was, and who was a foe!

e) Why should I not treat all customers as kings?

You have to differentiate and make sure your special customers really do feel special. You need to create reasons for them to develop loyalty and enjoy something extra for doing business with you.

Now what?

Thinking in black and white never helps! You can apply different tactics for different cohorts of customers. In fact you should look at ways to put CLTV as an important dimension of every possible cohort you can visualize. For example: x-axis for CLTV and y-axis for repeat rate/ NPS / visits / issues / resolution time / etc.

As you design specific interventions, keep in mind that your actions don’t alwayshave to be around selling. Use engagement-driven tactics that help you come across as a caring business; e.g. sharing useful information around products or just telling what’s new. And most importantly, you never want to design your engagement strategy solely around incentives because you don’t want to come across as a purely transaction-centric business.

As I conclude this post, I know, we tend to look at different metrics with each phase of growth. However, we must not forget to keep our focus on metrics that pass the test of time. If you are building a sustainable business, then make sure your metric also is, because

“Kings come and go, but kingdom seldom does.”

*Footnote (dialogues with self):

Under each of these examples, an important metric may be improving but at the cost of another, which is why CLTV always has to be at the forefront.

1) My sales are growing. But wait honey, you aggressively pumped $$$ into marketing campaigns, and that doesn’t always translate into sustainable sales or profits!

2) My customer repeat rates have gone up. Interesting! But why are most of your customers now buying inexpensive, frequently required goods? Diapers, really! Come on, that isn’t a sign of loyalty unless you can sell premium perfumes too!

3) My order value and overall sales have grown. Cool, did you just fund huge discounts on big ticket items?

4) I’m now profitable. Quite! Don’t celebrate yet. Are you sure these aren’t just a handful of customers driving all your profitability? Or worse, if you recently launched a profitable but non-differentiable service, you know deep down that your competition would soon catch up!

(A special thanks to Nikhil Dwarakanath for sharing his perspective; thanks toCandice Martins for reviewing the final draft)

06/05/201606/05/2016

Who said that the customer is a king?

Lesson one in succeeding at customer management: don’t treat them all alike.

Whosoever said that the customer is a king, didn’t tell us which customer! And until you know which customer deserves your very best, you’re not likely to have a very effective customer management strategy. In this post, I want to share a framework which will allow you to understand how to holistically look at your customers and then decide where to start with managing your customers better.

But why is this even important? Well, it is. The competitive pressure that most of the organizations face today has compelled them to find ways to identify customers who deserve to be king and then treat them like one! There is a strong rationale to do so: most of the organizations report that less than 1/3rd of their customer base drives more than 2/3rd of their revenues. This number varies depending upon industries; for instance, a telecom operator may report less variation in per customer revenue contribution than a B2B software development company. This variation simply depends upon the upside potential of customer engagement. Remember, huge variations in a company’s customer engagement dynamics present attractive opportunities for (niche) competitors. Therefore, companies with higher upside customer potential need to have their ‘royal strategy’ ready soon before their king departs to rule elsewhere.

Now, there are two challenges: A) how to identify king customers B) how to design a royal treatment. Though there are numerous ways one can approach this issue, the framework I propose simultaneously takes into consideration the acquisition strategy and CRM strategy of an organization. The argument is, “if a company is not attracting the high potential customers (kings) in first place, no matter what CRM strategy (royal treatment) it pursues, it will never succeed”.

Housekeeping notes:

1) Acquisition decisions reflect in the profile of target customers, acquisition channel, and messaging / advertising strategy. The success of these decisions will reflect in the type of customers you attract. Before putting customer segments to either right customer or wrong customer type, take some time to identify any common patterns / characteristics / predictors of your most desirable customers.

2) CRM decisions broadly cover product selection, buying experience, incentives, personalization, and post-sales support. You succeed if your customers find your overall value proposition exciting on an ongoing basis! Before putting your customer in different buckets of value proposition, consider a combination of quantitative / qualitative factors which show how invested a customer is in this relationship. E.g.: Avg. Order Value, Number of Orders, Recency, Net Promoter Score (NPS), etc.

3) CLV (Customer Lifetime Value) is the sum total of expected profits from a customer. Companies should try to find CLV of each customer or small (but serviceable) customer segments, rather than identifying all the customers with one CLV.

4) King Customer is the one who has demonstrated either the potential (requisite characteristics) or the actual behavior (spend + mutual fit) to be your most desirable customer.

Segmenting an organization’s customers strictly across a 2X2 framework may not be that easy or even necessary. But if you look at a range of options on the spectrum of wrong customer to right customer or low value proposition to high value proposition, you’d be able to identify the levers you need to start playing with.

Key take away for a winning customer management strategy: you definitely want more of your customers in the top-right segment. These are the customers you have always wanted to attract, and now, all that you need to do is to keep these people constantly engaged with high value proposition.

I will even argue that an organization should look beyond Pareto’s Principle of 80-20. Why not have 80% of such customers who contribute the most to your revenue? I don’t think there is a reason for us to cap our kings at just 20%… Let everyone be a king, let it be an ultimate democracy!

25/04/201625/04/2016

How to identify and track the right metric?

“To know how to measure the success, is to know how to achieve it”

A few days ago while discussing complexities of managing a product portfolio, Uday asked me a simple question: what is the most important metric one should use to measure product performance? I suddenly felt dumbfounded because I didn’t have a clear answer. Though I could have used my heuristics to throw suggestions such as ARPU (average revenue per user), engagement, and churn rate, I knew that the thought process was more important than the metric itself. A good metric allows taking action, a bad one only provides some data. So Uday and I decided to jointly answer this question by creating a framework, which Uday will illustrate with examples from his experience. So here are the four steps:

1) Define what the big success looks like

This is the most difficult step and perhaps half the work. This requires you to see the big picture and yet relate to all the parts. But you can perhaps do it much easily, if you start thinking of success in pure binary terms. So everything succeeds, if this one or two things happen right, else everything fails.

Uday: At my previous startup, I was looking at the dashboard which tracked conversion funnel. I knew that just looking at growth in number of visits, free users, and paid users would only paint a rosy picture, and not necessarily the most accurate one. Clearly, the single most important goal for my company to succeed at this stage was ‘growth in paid user’ and ‘longevity of paid users’.

2) Break down and prioritize on the basis of need and controllability

Now that you have one or two big metric from the first step, you need to start breaking them down. Once you break it down in different parts, start prioritizing on the basis of what answers your most pressing needs and what you can control. It’s okay to combine multiple variables to create a super metric.

Uday: I decided to steer away from vanity metrics like number of page views, which were simply non-actionable for me. I focused on 1) (CLV), which captured engagement (longevity) and reflected whether we were on track to become a sustainable business (revenue/growth); I used cohort analysis for this. 2) Net subscribers (new paid subscribers – cancellations on a given day), which helped us capture change in two important things in one attempt – number of free users converting to paid users and cancellation (super metric).

3) Locate the right data and evaluate cost

Now you know what you want to track, you need to find information to do that. Remember, available information can be cheap, but retrieving it in desired format, not always. If some information is easily available and helps you answer ~85% of what you want to track, make adjustments in your metrics and go ahead.

Uday: Although all data was readily available, I had to make additional efforts for conducting cohort analysis with CLV (the cost!). Later on I got a dashboard developed to do the same, without having to resort to excel every time.

4) Develop, present, and revise

This is more like a hypothetical step, before you actually present the final metrics. Imagine that you’re presenting your metrics to someone important. Think the questions they would typically ask. If you are able to justify your choice of metrics and explain why you didn’t include a lot of other metrics, you’ve done a good job. Else, revise.

Uday: I made all the reports / dashboards simple, comprehensible, and differentiable. I was ready to answer questions like how I was already baking in conversion rate, active users, and paid subscribers in my choice of metrics. Sometimes I would separately include information for my marketing team which would typically ask for these baked-in metrics. Lastly, since cohort analysis was the basis of my analysis, I’d put a foot-note for those who didn’t understand it well.

Remember

Understand the difference between absolute and relative terms. Often, we need a combination of both to create an accurate picture.
See the forest for the trees. Your selection of information or metric should try to capture major trends, opportunities, or challenges.
Don’t go online right away as you start brainstorming. You have to understand what answers your business questions, not someone else’s.
Go online once you know what questions you’re trying to answer. Taking ideas from how others did it efficiently is good once you understand your problems better.
Keep it simple. Does it require any explanation? 🙂

A well-thought metric allows us to deal better with uncertainty of decision making, with a precision of action. And the next time someone asks me to include another metric in my analysis, I don’t want to respond by saying ‘sure, I will include that next time’. Because everything which is necessary, would already be there!

(Co-author: Abhyuday “Uday” Chakravarthi, image credit: Dennis van Zuijlekom)