Customer neglect is a good strategy?
“Provide whatever service you can, as long as it doesn’t slow us down. And that may mean — no service!” Reid Hoffman.
This is the advice given to the next generation of entrepreneurs by Reid Hoffman — doyen of Silicon Valley, co-founder of LinkedIn and one of the masterminds behind the early success of PayPal.
He describes how he applied this strategy in the early days of PayPal on his Masters of Scale podcast (episode 10, July 2017, “Let Fires Burn”).
It’s an interesting series. The blurb on the website reads: “In each episode, Reid shows how companies grow from zero to a gazillion, testing his theories with legendary leaders.” The very top brass of tech are quizzed, from Mark Zuckerberg to Eric Schmidt.
But on this episode, the quest for scale goes too far. Hoffman recalls how, in its early days, PayPal deliberately neglected customer complaints. It let unanswered customer emails build up at 10,000 per month.
And clearly, the penny didn’t drop on the human implications of these actions, not even when a ‘relatively tall, bulky gentleman’ showed up at PayPal’s offices wanting his payments.
With complaints piling up, PayPal took a decision to switch off the phones and simply ignore irate customers.
Hoffman argues there are so many fires to put out in high growth companies, inevitably, some must be left to burn: “I believe smart entrepreneurs don’t try to fight every fire. They have to let some fires burn — and sometimes very large fires.”
Fair enough. But he goes further.
“You often have to make a choice between serving your existing customers or reaching new customers. And if you’re growing exponentially, it’s a no-brainer. For scale companies, the rule is, provide whatever service you can, as long as it doesn’t slow us down. And that may mean — no service!”
Maybe not so fair. Especially for those needing their payments.
Paypal later set up a call centre and sorted out the customer service issues: “We let those complaints continue, until one day, we were positioned to solve the problem all at once.”
Commercially, the strategy worked. PayPal’s offering was compelling enough to survive a raft of dissatisfied customers and power the company on to success.
But ‘to let fires burn’ (in a payments business — this wasn’t some gaming app), and then promote the idea to other entrepreneurs … surely, that ain’t right?