It’s not about getting them, stupid. It’s about keeping them.
Before the mobile revolution it was ‘hits & page views’, now it’s ‘app downloads & Facebook likes’. In their rush to showcase growth, are startups chasing the wrong set of numbers while ignoring the most important success criteria - customer retention?
“400 daily orders” said B, the growth manager of a hyperlocal foodtech startup, during a job interview. “Not only that, we managed to get over 25,000 transacting users as well”, he added with pride. B was not hired. Individually, both 400 daily orders and 25,000 transacting users are impressive numbers for an early-stage company but combined together they are the startup equivalent of Apollo 1. A few weeks later B’s company shut shop after a year of being in business.
Let’s do the math: They did a flat average of about 175 orders a day in 12 months of operation. That’s a total of, approximately, 63,000 orders for the entire period. According to B, one meal was given free to each transacting user to encourage their first order. That’s 25,000 free orders out of 63,000. Even if we assume that no other promotion was ever offered, there were 38,000 additional orders between 25,000 users. That’s 1.52 orders per transacting user in 12 months. Suddenly, the pride of getting 25,000 users started looking misplaced.
There is absolutely nothing wrong with offering the first/fifth/tenth order free/discounted to get someone to try your product/service. It’s the most basic and, perhaps, the most effective growth hack. Generally, you are free to be as aggressive as the lifetime value of your customer permits. Occasionally, it’s okay to breach that mark for specific goals. Eventually, you will get the users to accept your offering qualifies the method in this madness. So what went wrong with B’s company?
It’s not that difficult to answer. While B’s company acquired users at will, it failed to retain them. Even before they could establish their value with the existing users, then went on to acquire a zillion more and then some. The focus was too much on the share of the market and too little on the share of the wallet. B’s company is not alone. In my view, a lot of new Consumer Internet companies are focusing on the wrong set of numbers.
Back in 2001, as a 21 year old, I got the opportunity to join two former bankers from Citi NY, as the co-founder & CTO of ‘24/7 Marketlink’, a CRM consultancy. We would help companies understand their customers and build retention strategies around them. Back then, not many people understood the value of knowing their customers; sales was everything. Our core pitch to potential clients revolved around the 80/20 rule of CRM - ‘20% of your customers drive 80% of your revenues/profit’. Thus, we argued, it was important to understand who these magical customers are and focus a large part of your energy on them. We would also suggest ways to convert part of the remaining 80% into engaged and profitable users. In theory, it contradicts the 80/20 rule, but practically it’s applicable
There are many interesting ways in which you can apply the 80/20 rules. Explore them; you’ll not be disappointed.
While the accuracy of Vilfredo Pareto’s 80/20 rule can be debated, there is no denying that you have to identify, engage and retain your most valuable customers to stay in business. At the same time, you have to constantly work to move the unprofitable lot higher up in the pyramid. The specific process to achieve that is beyond the scope of this blog and it would vary greatly depending upon the idea/industry. However, you need to define the mutual goals that will keep both the customer and your organization interested in each other.
Coming back to B’s company: The customer behaviour made it amply clear that there was problem with the product acceptance. It could have been because of the price or the food or the service or the technology or combinations of the above. Piling up new customers was, perhaps, the worst way to address the problem. They should have paused and asked the buyers instead.
It’s the customer and the customer alone who can help you understand what they want. Steve Jobs may have disagreed but your average chicken sandwich is not exactly an iPad. The idea is to work backwards from the needs of the customer and tweak constantly till the mutual goals are set. And NO, the ‘push notification’ is not the magical answer to all your engagement needs (quite the contrary). You need to dive much deeper.
You’ve worked hard and spent money to get the customers into your ecosystem; do everything you can to retain them.