Before You Hack Growth, Hack Retention
Expanding is easier if you first find the “right” customers.
When you lead a startup, it can seem like all anyone cares about is growth.
The first question a distribution partner asked me in our catch-up call the other day was how large our client base had become, and our year-over-year growth rate was the first thing a fellow business owner wanted to know .
At a recent trade show, a competitor introduced himself by saying,
“Nice to meet you. So how many clients do you have now?”
While growth is obviously crucial for valuation (not to mention long-term company health), smart leaders and investors now view growth only in the context of churn.
If you can figure out how to retain customers, every dollar you invest in growth will pay greater dividends through increased customer lifetime value.
That may sound like something that every CEO would find obvious, but I didn’t really get it until one of my mentors, John Warrillow, helped me see the light.
“Right Business”: What John Warrillow Taught Me About Retention Hacking
Back when we started Worldwide101, in 2012, we took on just about anyone who came calling for a virtual assistant. Within a year we were growing fast, but my team was spending the bulk of our time on account management.
A big reason was that we had signed up clients with esoteric needs that went beyond our virtual capabilities.
For example, one client wanted us to receive, open — and read — his physical mail during his monthly business trips to Asia.
We reluctantly agreed to do it so we could earn his business, but then he blamed us for losing an important piece of mail, which as far as we knew, we had never received.
Our churn rate was high, and my team was miserable. That’s when I reached out to John Warrillow.
I first got to know John a few years before when he signed up as Worldwide101’s fifth client. The best-selling author of Built To Sell and The Automatic Customer, John was looking for a team of highly skilled virtual assistants to support his business, The Value Builder System, a methodology for increasing company value.
Over a series of sessions with my leadership team, John not only helped us get back on track in building real, sustainable company value, he also helped us regain our sanity! Here are the three big lessons I learned from John — the pillars of what I call retention hacking:
1. Define the “right business” for your company
One of Warrillow’s core tenets is that you have to focus, right from the beginning, on acquiring the right business. As John says,
The right business yields the lowest churn.
This is particularly relevant to a subscription business model in which revenue is at risk every 30 days and acquisition costs are relatively high.
For us that meant rethinking our approach to marketing and sales. Instead of taking all comers, we had to identify the attributes of our ideal client persona. What would predict whether someone would be a relationship that’s a win for us and them?
Needless to say, answering that question meant that we had to get clear on our company values. Eventually we decided that our ideal client is a demanding founder or executive who sees value in partnering with an experienced, highly-skilled virtual professional for the long term.
2. Say “no” to everything else
If you’re really committed to reducing churn, then saying “no” to new business becomes a daily reality. That is, you must turn down prospects who want you to deviate from your specialty, to make exceptions, or to bypass your established processes.
This is obviously difficult, but as John points out, the more times you say “no,” the more “right” clients almost magically appear at your door:
Prove that you’re serious about specialization by turning down work that falls outside your area of expertise. The more people you say no to, the more referrals you’ll get to people who need your product or service.
Saying “no” has been especially difficult for us, as we take pride in offering a personalized experience for everyone who gets in touch. But it has slashed our churn rate by more than 50%.
In fact, the few times we’ve given in and accepted clients who didn’t fit our “right business” definition, they became a huge drag on our resources and they eventually unsubscribed.
I used to worry that turning down an eager client was unkind. Now I believe that it’s more unkind to take on a client you know you’ll disappoint.
3. Design all your messaging to attract “right” clients
Once we had defined “right business,” we obviously had to communicate that clearly — and forcefully — so that “right” clients would be more likely to find us (and “wrong” ones would not). Again, John’s words were a valuable guide:
Be clear about what you’re selling, and potential customers will be more likely to buy your product or service.
After identifying the attributes of a “right” client, we built a script for conversations with new prospects.
Our stance used to be “What can we do for you?” Now it’s more like “Let’s find out what you need, and let’s see if that’s a fit with what we offer.”
That subtle change means that now we’re leading new business conversations by actively vetting prospects.
When a prospect wants to engage with us in a way that’s a radical departure from what we’ve learned works best — or wants to short-circuit steps in our on-boarding process designed to ensure a prosperous long-term relationship — we know it’s not going to be a good fit.
Retention Hacking Is Always Ongoing, No Matter How Big You Get
Of course, retention hacking isn’t a set-it-and-forget-it affair. As your business grows, you may find that your definition of “right business” changes due to all sorts of factors — competition, innovation, regulation, whatever.
In that vein, it was interesting to read Uber co-founder Garrett Camp’s recent Medium post, in which he spoke up about Uber’s recent troubles. Asked what went wrong, he said,
In a highly competitive market it is easy to become obsessed with growth, instead of taking the time to ensure you’re on the right path…Now is the time to pause for a moment and think about what really matters here.
Words that, thanks to John Warrillow’s mentorship — and some tough but valuable learning experiences — I’ve learned to live by.
About Sandra Lewis:
Sandra is the founder of Worldwide101, a premium virtual assistant company connecting demanding founders and executives with highly skilled, meticulously matched help. You can connect with her on Twitter or LinkedIn.
