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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)

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DNA mysteries of Products and Services

It has been an interesting coincidence on the last few occasions in different discussions and industry forums I participated in, they have attracted a good amount of the classic “Products and Services” in IT deliberation. As such, this is not a new debate. It is common to see patrons from the products world root for it by generating IP and for the services gurus illustrate how they are able to tailor deliveries as per customer need to make good revenues.

In the various roles that I have been involved in be it front line sales, to working with target customers, to addressing markets through the channel, or driving product management for products of different types right from enterprise to small and medium businesses that are deployed on-premise or delivered as a service; I have realized it is more than “this versus that”. At the face of it, running “product or services” businesses largely seem to be two different ball-games. They do have different DNAs. However, in addition to the different focuses that are essential on some aspects; these also involve some common influences that need to be capitalized upon. And no, it doesn’t end there. An important element of success viz the customer expectation is undergoing an interesting shift. A customer increasingly expects…a solution! They are neither looking for a product or a service in isolation, but instead for a solution that delights and delivers timely value. In this post, we will explore the characteristic differences—the DNA differences between IT products and services; and some common factors that have a bearing on the business opportunities and performance.

The landscape—A holistic view

Let us start with a holistic look at some key characteristics of what constitutes a product and a service. The marketplace typically includes an offerings continuum. At one of the two ends are pure-play products and at the other pure-play services with combinations in between. It can be illustrated as below:

Offerings ContinuumThe DNA differences—A closer look

If we take a deeper look and closely evaluate this in context of IT products and services, around which this post is primarily focused, it involves some common influences, but with distinctly different DNAs to run both businesses. The evaluation of key indicators across these businesses includes consideration for common factors, but with different approaches. For instance, both product and service type of offerings involve evaluation and use of technology, assets and resource planning, cultural bearings and so on.  A comparison of DNA differences for some key indicators is included below:

Product-Services-DNACommon influences—A quick digest

As we can see, there are some distinct DNA differences. For instance, meeting a market need versus single customer requirement; transactional approach versus relationship driven, internally focused culture and processes versus tailored to customer. At the same time, aspects like technology, people, and processes are the common influences that can either enable or inhibit effectiveness in either model. They serve both as an opportunity and a challenge! The previous section has covered how the approaches vary across indicators. Let us now briefly assess the common aspects that can greatly influence outcomes.

  • Technology: Technological advancements are constant. With every technological paradigm shift, right from main-frames to distributed systems to the cloud, with the change in technology capabilities available, businesses have looked at methods to leverage these for maximum benefits. So for a provider, irrespective of the nature of business, they have to constantly find ways to stay abreast of technological advancements to be in a position to lead the market or advise a customer with right solutions. For instance, if we take a look at one of the hottest shifts around SMAC (social, mobile, analytics and cloud), it is not prudent for either product or services companies to ignore those. Products need to evolve to cater changing customer preferences, interaction methods and deployment models. This is not just limited to product companies. These shifts need service companies to ensure their offerings weave these in to truly to ensure customer delight in-line with newer preferences.
  • People: One of the most significant contributors to the success of any business is the people assets they have. Knowledgeable, motivated, productive and enlightened workforce is needed for runnnig both products or services successfully. Ensuring the workforce it kept current with the market and technology demands and on the soft side ensuring they’re productive is of paramount importance. This of course is an obvious one. But going wrong with this could have the entire game go south even if all else is right.
  • Process: Processes are a great tool any company can have through which preferred frameworks can be pressed into action for a more consistent and repeatable outcome. These could be applied to internal focused activities like training and development, knowledge sharing, documented development methodologies (e.g. Agile, etc.), sales methodologies and so forth. Processes can help with managing OpEx for both frameworks. Similarly, they’re applicable even to external focused aspects like processes to demonstrate thoroughness of approach, for compliance and so forth. How far to adapt really depends on appetite and culture; which varies from company to company.
  • Success factors:  While the measuring metrics might differ across lines of business, it is a fact that there is no better way to walk towards success than to be driven by results that ensure customer success and delight. This is an essential metric to keep track of that cannot be overriden or ignored in either business.

Looking at all of above, one can think of products and services as two separate circles having distinct DNA differences with some overlap of common influences. All of these put together, put organisations in a position to meet the need of tomorrow. Let’s take a look at an illustration that highlights these put together:

Product&ServicesThe Ultimate structure—Solutions shift

At the same time, given the economic challenges, the markets becoming buyer markets, general shifts in buying patterns, need to respond to businesses faster, and need to demonstrate value and return on investments (ROI), the focus is increasingly on the “customer” than just a product or a service that is up for offering. Customers today carefully evaluate every penny being spent. They expect to realize value from investments faster. Customers are tired of siloed approaches either by just having a product deployed and not having a working solution, or having a solution frame-work, but the underlying products not being stitched to deliver the value the customer expects from the investments made. Gone are the days where companies could deploy a product and take months or even years to tweak it to customer need. Or suggest a service without having their own skin in the game when it boils down to technology or products involved.  Customers today expect product companies to not just deploy a product, but to provide a working solution tailored for their needs. Customers today expect services companies to have the required levels of expertize, coordination and relationships with involved products and technology stacks, to effectively tailormake a solution to meet their needs faster. They do not expect the ball to be dropped in either of the cases to have prolonged deliveries. Customers today are looking for working solutions. Customers today are looking for faster realization of value. Customers today are looking for a positive experience to respond better to business needs rather than being tied up with large IT projects. They need to be delighted—truly!

The shift is really towards using products and services together effectively to deliver effective solutions. Irrespective of their primary DNA, every company will need to evaluate how they can work out the entire DNA strand to have a solutions structure!

The new shift focus

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If you really have to enter the US market – some do’s and don’ts

A few weeks back I had written a post on entering the US market. It was very gratifying to see the response from so many of you on that post. So following the lead of that article, here is another one. 

In this post I talk about some of the basic things Indian companies can do to improve their probability of success in the US. If these come across as simplistic, its because they are not hard to do, but they are made hard by the cultural programming we come with. To paraphrase Dorothy from Wizard of Oz, companies have to be consciously willing to say – “Toto, we are not in Bangalore any more”. So, without further ado, here goes: 

Lesson #1

– Employee #1 has to be a jack of all trades

– The first person you hire will likely be required to set up office space, put in a phone system, hire new staff, set up payroll, healthcare, the list goes on. If you are thinking of hiring a sales top gun as your first employee, think again. You will need to have the basic HR infrastructure set up for your sales people to not have to worry about the basics. If you don’t do that, you will frustrate new hires and scare away high performers. 

Lesson #2

– 9AM EST does not mean 9AM – 10AM EST –

We Indians are hardworking, committed but we aren’t exactly known for punctuality. In the US, IST (Indian Stretchable Time) jokes abound. All too often, this translates into missed appointments with customers and prospects. Time is valuable. If somebody has given you an hour, respect that.  While showing up on time is important, ending on time is important as well.  If in doubt, ask. Nobody is going to mind if you ask for permission to go over your allotted time. 

Lesson #3

– Don’t talk over people. Its rude.

– Another very Indian trait is our love for intellectual discussion. Coming from a country of over a billion, we are used to shouting over each other to get our point across. Unfortunately it doesn’t work in other parts of the world. All too often we get carried away and talk too much for too long. Other times, we will interrupt a speaker to inject a point or many times simply to agree. I learned this lesson the hard way many years back, when a customer essentially asked me to shut up and listen (they did buy from me).

A much more culturally acceptable norm is to not interrupt a speaker. Let them finish, ask if they are done and then make your point. When making your point, use short sentences and stop often and ask for feedback. It is not natural behavior for us Indians but we need to be conscious of it. 

Lesson #4

–  Learn to say no

– We work hard and we love to please. Sometimes it translates into not being able to set boundaries. In the product or the services business, you have to set boundaries if you want to be profitable. If something can’t be done or will cost more, flag it. Customers expect that. We can’t please everyone but if you don’t set boundaries, you will please no one.

Lesson #5

– Over-communicate

– You have a client. The project has begun and the India-based team is working hard. The India team is telling you everything is on track but the customer keeps sending you emails on how she is not happy with the project. Sounds familiar?

In my experience, this happens most often because the Indian team does not communicate enough with the client. The already jittery client who has bet on an unknown quantity gets even more rattled by not getting any regular updates from India. Make a conscious effort to communicate every day. It could be just an email update summarizing what was achieved that day but it goes a long way in giving peace of mind to the client. 

Lesson #6

– Use your network for initial hires, if using recruiting companies, choose carefully

– Your first few hires are critical. They are best picked through people you know and trust. So, first look to your network. If you do have to go and hire an agency, be picky. Indian recruiters, and I am sure there are some good ones, come with the same set of problems as the rest of us from India. My sample size is small but in my experience (and the experience of many of my associates), they aren’t punctual and don’t call on time and their follow-up is terrible. Rather than getting prospects excited about your company, they end up pissing them off. So, do your due diligence and talk to current clients of the recruiting company you are thinking of employing. It is worth spending time thinking through your hiring strategy. Humans make the company. Don’t forget that. 

Every one of us is shaped by our experiences. My observations are shaped by mine. For what it is worth, my viewpoint has evolved on four continents over a 24 year period. Like everything else though, it changes through new interactions and experiences. These are my thoughts today. Tomorrow might be a different story.

Agree. Disagree. Or have another viewpoint. Would love to hear your thoughts.

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India has a drought – not of Investors, but Customers

I came across this rather misleading article by a New Investor in town, that India has a Series A drought. I think its a bit sensationalist and misleading and drinks a bit of his own coolaid and shifts blames on others, but I’d agree with the article on one count – Yes there is a drought.

I am going to start this off on the right foot. This whole venture funding phenomenon is about at the best 15 years old in India. Whenever i sit with the guys who really understand business and even remotely talk about the things we talk about – they give me a dazed and confused look. You know why? Venture capital is nothing more than a bank – a bank which specializes in lending to private companies. I cant think of a single self-respecting business man who built his business based around what the money lender thinks he should do. If Startups today are talking about funding – as their only big milestone – there is no one to blame but the loud-mouthed investors who have positioned themselves to be the focus point for these early stage entrepreneurs.

Now coming back to the topic. We see the following happening in India:

1. Compared to 7 years ago, everyone knows what a Startup is.

2. Mainstream media has accepted Starting up as a perfectly acceptable choice of career – they are dedicated shows and show hosts who think they are celebrities.

3. Almost every well known Investor (Startup Bank) has an office in India.

4. Angel Investment is on the rise and its raising angels in the country right now. I seem to be bumping into more angels than Entrepreneurs sometimes – its scary.

5. The Govt causes a fuss from time to time but predominantly has stayed out of what they dont understand.

So What’s missing?

Are there great ideas? Yes

Are there great teams? Yes

Are there great products getting built with world class UI? Yes Yes Yes, andYes

Are teams bootstrapping/saving up/ getting a bit of money to get off the ground? Yes

Is there ample Series A happening? Yes, but Not Yet at scale

Are there exits happening? Not Nearly

Read the Complete post here

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How far should you go with Professional Services in your product business?

For any products company, product support is a given, and part of the products business fabric. However, almost all Enterprise Products Companies end-up offering the professional services beyond basic product support. These services could range from simplistic implementation support, to integration, to solutions-building, to architectural consulting, to IT advisory support. The decision to perform professional services could be driven by customer-demand, or by the intrinsic need of the product being sold, or even driven by the business strategy itself to generate peripheral revenue.

It’s important to understand where the boundaries lie, and what goal does a certain type of professional services serve. The decision to commit to a particular type of professional services needs to be driven by a conscious thought process. This is important because the time & resources required to build various skills & operating models for serving the various flavors, change dramatically from one to the other.

Professional Services in Products Business

1. Product Support

This is the core to the products model and serves as just that – support to the main products revenue, and to ensure customer satisfaction. While the core strategy for any product should be to make it so good that it requires minimal support, there’s always a need for support – offline and real-time for the customers.

2. Implementation Services

An ideal product is ready-to-use off-the-shelf, however, in case of Enterprise products the need to configure & customize could wary. Most times, customers demand for an implementation service packaged in the license deal initially, in order to ensure success. Most times, products businesses have to employ this mechanism also to close sales cycle and to ensure a consistent source of post-sale revenue from such services, and also indirectly to ensure expansion of the product usage through consistent personnel presence on the customer premises.

3. Integration Services

This is where it starts going slightly further away from the core skills that the organization may possess organically. Integration with the existing IT systems and other products at the customer premises would require the skills & management practices beyond the core areas of the organization. An extra source of revenue is one of the temptations, but there are also scenarios where integration of the product is critical to the success of the product, making such services mandatory. This is especially true if the product interfaces are not built with open-standards, and require the integrators to know the details of how the product is built internally. The correct approach would be to build the product interfaces in a way that doesn’t force the business into such compromise to induct professional services for integration. There’s an indirect impact of diversion of core product resources to such integration projects unless such professional services are pursued by design, and resources built accordingly.

4. Solutions & Consulting Services

This is where the game gets strategic, and resources expensive. And the reasons to do this are not any more intrinsically important, but strategically targeted to higher value to the customers and hence, access to the larger pie of the wallet. However, this is easier said than done. Unless there’s enough scale & case in the existing business to allow the focus on such services, strategic, and by design, a business is better off focusing on building the core products business stronger by investing resources there. This makes sense for the products, which are more like Platforms that provide larger leverage than in a Point-solution product.

5. Advisory Services

This is important for the products that are targeted for larger ticket sizes and are built for Enterprise-wide deployments. The IT strategy alignment as well as the strategic positioning of the product becomes important, and it also requires much larger IT leadership level involvement. For Enterprise Platforms, or even for departmental level strategic investments, this approach to professional services can bear fruits. However, building it into a business line requires the core product business to be strong, ready for the leap.

So what?

While the Businesses can look at starting off with the lower scale of Professional Services and build up over time, the decision is very strategic and long term. Professional Services, while offering additional top-line, could actually be a resource-intensice and money-draining proposition if not built properly. The mindset that governs the professional services line of business is drastically different from the product side of business. The operational efficiency is paramount, & profitability can very quickly take a hit. Even more importantly, professional services are more intensely people-driven and the skill sets required to build and sustain this business over long term are not trivial. Look, think, and think hard, before you leap.

PS: There are other considerations on Professional Services that directly or indirectly impact the core product business. I will cover in those in the next post. Until then, hope this helps! 🙂

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Does your customer know what you are talking about?

Let us face it, technology startups are often founded by geeks, employ geeks and hence are, more often than not, geekdoms. There is tremendous value in it. However, there is a significant downside to this as it relates to communication.  Geeks speak geekspeak and unfortunately that is all the customers hear a lot of times. This is a HUGE mistake.

Never forget who you are in the business for. It is your customers. If your value proposition is not clear to the customer, you will perish. The customer needs to see value. She needs to know that you understand her pain and will help her. She needs empathy not geekspeak. And this is true even when you are speaking to tech buyers. You need to be very clear on how you and only you understand the pain they are feeling and can help them. If you can establish that empathy and can weave it into the product you are pitching, you are already ahead of the competition.

Abandon the geekspeak and the discussions on all the bells and whistles that your product has. Instead, focus on business value it creates or the business pain it alleviates. Use simple, easy to understand language. For example, instead of saying “the product has an enterprise class data warehouse based on a dimensional data model, supported by all major RDBMs, that houses information from disparate sources”, you can say that “using a single repository of data all the business users see the same version of truth. This allows for accurate and timely decision making and meaningful interdepartmental communication”. By eliminating geekspeak you have shown how the product is meaningful to the business user. Nice technology is good, in fact it is essential, but it is not an excuse for clearly articulated benefits. It is almost as though most technology companies operate behind a cloud of geekspeak, and it is the company that breaks through the clouds and communicates simply, that stands out.

So, spend some time. Understand the business problem you are solving, develop empathy with your potential customers and analyze your competition. You should then be able to come up with a story that resonates with the customer. If you are able to do that, you have the power to change the dialog, project yourself as the hero and differentiate yourself from the competition. And that can’t be a bad thing.

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Get Your Story Straight

What do top technology companies have in common? Think about SalesForce, IBM,VMware, Workday, Apple, Riverbed, Cisco.  What separates market leaders and category creators from the rest of the pack?

They tell powerful stories.

Stories matter. We see it over and over again. Companies that capitalize on an inflection point and grab a leadership position always have a thought-provoking point of view that resonates with buyers. Customers buy into the story before they buy the solution. 

And a story is more than a slogan or a catchy tagline. It’s offering a different perspective, not just pushing a product. It’s a crisp, clear way of communicating how a company or a product will solve a big, hairy problem for customers. It comes from putting the customer’s needs and requirements first, not the technology or the company’s agenda.

Look at Cisco. The company wasn’t founded to sell routers and switches. It started when a husband and wife wanted to email each other from different offices at Stanford and they couldn’t. So they created the multi-protocol router and solved the problem. And they knew others wanted the same problem solved. They didn’t launch a product—they solved a problem and created a powerful story and different point-of-view. And they instilled a customer-first, problem-solving culture at Cisco. You know the rest of that story.

Need other examples? Look at game-changing CEOs Marc Benioff, Larry Ellison, Steve Jobs, and Jeff Bezos. They disrupted markets and catapulted their companies into legendary status with conversations that re-framed the problem for buyers. They articulated their company’s value in simple, concise positioning stories and a narrative that offers a new perspective to buyers.

So if a great story is the key to success, why doesn’t every technology company have one? The reason is simple.

All too often, the responsibility for positioning is taken on by tech CEOs or product managers who are in love with their technology.  And technology moves to the forefront of the story. WRONG. Buyers don’t care what’s cool about your technology or your IP. They care what it does for them.

The most effective storylines carve out a distinct corner of the room—and box competitors in as having a solution for “yesterday’s problem” or “the right idea, but the wrong approach.”

What makes a good storyline? The most effective positioning stories MUST answer three questions for the target buyer:

#1: Why your company or product, NOW?

Tell them in clear, human terms what problem your product solves and why it’s important to solve it TODAY. Is this an old problem that has gotten worse? A new problem caused by fast-changing market dynamics? Will your buyer lose his job if he doesn’t solve this problem? Strong positioning stories empathize with the buyer’s situation and create a sense of urgency about solving a critical problem.

#2: Why is your solution different?

Once the buyer agrees with your point of view, the next question on their mind is “who else can solve this problem?” or “can my existing technology vendor take care of this for me?” Great stories lay down the logic for a new approach to solving the problem. This requires talking about your secret sauce, IP, or game-changing differentiators  in terms of business requirements. You can avoid the tedious “feature-checklist” war by articulating the need for a different approach. Different, not better, always wins.

#3: How will this improve my life six months from now?

Paint your buyer a picture of how much better their life will be with an investment in your solution. Your life is “hell” right now (big problem); here is the unique approach (our secret sauce) for solving this problem; here is what your life will soon look like.

All market leaders and category disruptors have a compelling and distinct point of view. If you want to join them, start by getting your story straight.