Category Archives: Products

When Customers Attack

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Not all of your customers will love you. 320px-LemonsharkIn fact, many of them won’t even like you. In my career building products and services, I have been referred to as: idiot, moron, incompetent, joker … and many, many more offensive terms involving profanity which I won’t reproduce here.

It is hard building something new and sending it into the world. As a maker, you feel that your work is a reflection of yourself and the way people respond to your product is how they respond to you. If they love your product you feel validated, but if they hate it you feel like a failure. You have to rise above that in business. You should not fear angry customers.

You should fear customer apathy.

The most dangerous thing for you and your business is customers who don’t care. They look at your product and move along. They never engage, they never care, they never think about it again.

You want customers to be angry, because that means that at least they care. Someone who is angry is someone who cared and was disappointed. Maybe the customer thinks your product is too hard to use, too expensive, not powerful enough, etc. Whatever the reason, they wanted your product to be better than it is. They wanted to love you.

Many of the best customers I’ve ever had, the ones that become evangelists for my products and brand, started off hating my products. It is by working hard to reverse their disappointment and make them happy that they become happier than someone who is satisfied at the beginning. An unhappy customer is a chance for true customer success.

So, how do you turn an angry customer into a friend? There is no one answer but here are a few things that will help:

  • Active listening. Respond quickly and clearly, demonstrating that you understand why they are angry. Many people get angry just because they feel ignored. Eschew automated email responses for personal phone calls or in person meetings.
  • Customer empowerment. As I mentioned – angry customers care. People who care have great ideas! Empower them by asking them how they would improve the product. What would they like to see done differently? Take that feedback and show them that you are listening through product improvements. Close the loop and ask what they think after the improvements are made.
  • Stay calm. If someone is screaming at you, it’s easy to get angry yourself. Always remain calm and treat them with respect. Your calm and respectful presentation will calm them down and have them treat you with respect in return.

It is not always possible to turn an angry customer into a friend. Sometimes customers are angry for reasons that have nothing to do with you or your product and are just using you as a punching bag. Even so, you need to treat every angry customer as an opportunity since you can never know that ahead of time.

We all want all of our customers to love us and be perfectly happy. That will never happen, so focus on the skills necessary to turn around bad relationships. You may find some of your best customers that way.

My new company, Outlier, is hiring our first few employees! If you are interested in joining an early stage company and working on the cutting edge of data intelligence, coffee is on me. Drop us a line here. 

 

Image made available by Albert Kok via the Creative Commons Attribution-ShareALike License.

That’s Just a Feature

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Stop me if you’ve heard this before:

It’s just a feature, not a product.

It is a popular refrain from skeptics who want to sound intelligent about a new innovation, product or company. On the surface it sounds insightful because it draws a line between a product that stands on its own (“product”) and something that solves a small problem and cannot stand on its own (“feature”). It is hard to refute as it is a subjective statement and easy to justify.

It is also meaningless.

Dismissing something new as a “feature” ignores the fact that every product starts by solving a small problem. When you are starting from scratch, you don’t have the time or the resources to build a perfect product that solves a big problem so you carve out a small part of that problem to solve. Whether you follow the Lean methodology and build a Minimum Viable Product or simply suffer from the resource scarcity that follows starting a company, your initial product will be simple and basic. That is a good thing.

Many successful companies follow a common progression during their growth:

Feature -> Product -> Platform

If your business has potential (see Are You Solving a Problem), you should be able to prove it by starting with a feature. From that feature you can build a complete product which, if also successful, will form the basis for a platform on which additional products can be built. Companies like Facebook, Google and Sony have all been built this way.

So if you find a skeptic that dismisses your idea as a feature instead of a product, don’t let that get you down. Instead, explain to that person the bigger problem you are tackling. If they still don’t understand, then I suggest ignoring their opinion. Life is too short.

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Illustration made available via Public Domain. 

Your Three Types of Customers

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When you design the user experience for your products, it is important to remember that every product actually has three different 6774634275_73b52d6267_zuser experiences. These three experiences exist because you have three types of customers and each of them will use your product in different ways. The three types of customers are:

  • Newbies: People who are using your product for the first time, right now.
  • Students: People how have used your product a few times and have mastered the basics but have not yet decided if they will be dedicated customers.
  • Experts: People who use your product as frequently as possible, ideally part of their daily routine.

Each type of customer has different needs, different expectations and requires different strategies to win them over. Let us review them one at a time.

Newbies: Winning on Day Zero

Day zero begins the first moment that a new customer touches your product. You should assume that, on day zero, Newbies know nothing about your product or what it is supposed to do. Hence, your challenge is to simultaneously educate them about the product while demonstrating how useful the product will be once they master it.

Your primary goal with Newbies is to get them to come back a second time. Customers that only try a product once are lost and almost impossible to recover. You want to find a way to bring them back often enough to increase the chance you convert them to a loyal customer.

To win over the Newbies, there are some key things you need to provide as part of your Day Zero experience:

  • The Wow Factor. Newbies need to see something exciting and memorable during their first time using the product, without requiring them to do a lot of work. Something that is so impressive that they will have an incentive to learn more and put up with the natural frustration that exists when learning something new. This initial payoff will set the tone for their interaction with the product.
  • Goals over Tools. Many products have their interface built around capabilities of the product, exposing everything the product can do. Newbies don’t yet speak the language of your product so they won’t know how to translate their goals into the features and tools you provide. You should focus instead on the goals of a first time user and map those into features for them. It gives you a great chance to demonstrate the power of the product, while helping a customer achieve a goal during their first time using the produce.
  • Limit Choices. While it might be great that your product can do a lot of things, you don’t want to expose these all at once to a new user. Instead, you are best to reveal only the minimum necessary to use the product and reveal additional complexity later. Providing too many options and too many paths will only serve to confuse.

Remember, your goal with a Newbie is not to turn them into an expert but to get them to come back again. If you are successful, your Newbies will become Students.

Students: Getting Over the Hump

Student customers are already familiar with your product and have used it a few times, so hopefully they have experienced the Wow Factor and have achieved at least a few of their goals using the product. You managed to convince them to come back multiple times, now your challenge is converting them into an Expert.

Getting over this hump, and turning them into loyal customers, will define how quickly your business will grow. Some common ways to help turn Students into Experts:

  • Always show them something new. Don’t overwhelm customers with power tools all at once, but encourage them to explore something new every time they come back. If you see them attempting to achieve goals, you can coach them with better or faster ways to achieve the same goal. You can also introduce features and tools they haven’t used before to expose them to everything the product has to offer. Constantly being exposed to new things will give them a strong incentive to keep coming back and learning more.
  • Watch out for warning signs. If customers show signs of frustration or lack of engagement, proactively engage with them. For example, if they try the same action multiple times with no success, you can prompt them with help on how to achieve their goal. These friction points also become the top priority for you to improve in the user experience.

Make sure that you are closely tracking your Students because they will be at risk of loss until they become Experts.

Experts: Rewarding Your Evangelists

Experts are the most active customers you have. They use the product constantly, hopefully everyday, and know all of the features inside and out. Since they are already as active as possible, your challenge is to keep them that way and not lose them.

The best way to keep them engage is to stay ahead of any reason they might have to leave. While you can’t force someone to be happy, you can remove reasons for them to be unhappy. Anticipating reasons they might depart and removing them ahead of time is hard but there are some general ways to do this:

  • Constant Improvement. Constant and consistent improvement to the product is critical. It provides customers with a sense that the product is always getting better, which will translate into patience when they encounter things they don’t like. If they get frustrated and feel that the product is stale they are more likely to give up and walk away.
  • Open lines of communication. Solicit and listen to feedback from these customers, giving them a feeling of ownership in the product. You should have special lines of communication available to Professional users which will make them feel valued. It will also allow you to prioritize their concerns and improvement requests.

You will lose customers, even Experts, that is a fact of life. However, minimizing that loss is critical for maintaining your business. It is significantly cheaper to retain an existing customer than to acquire a new one.

Conclusion: The Perfect Product

There is no such thing as a perfect user experience, as it is difficult to balance the needs and interests of all three types of customers at the same time. Some products are very simple to pick up and use the first time but are not useful for experts. Other products are powerful for experts but very difficult for first time users to learn. You cannot make everyone happy at the same time, but you can alleviate as many problems as possible. Just because there is no such thing as a perfect product does not mean you should not aspire to create one.

By taking all three customer types into account when designing your user experience you will get as close as possible to your ideal product.

Photo made available via Creative Commons by Flickr user Henriksent.

How To Measure Customer Happiness

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Are your customers happy?

Such a simple question is remarkably difficult to answer. You could ask them, but rarely will someone tell you their honest opinion of you. You could wait and see if they remain customers (unhappy customers will leave) but by then it’s too late to change their mind. You could have someone else ask them, but in the end most people have difficulty explaining their own feelings.

Ideally, you would have a way to measure customer satisfaction that:

  • Is a simple metric (a single number).
  • Fast enough that you can measure it on a regular basis.
  • Does not require a lot of analysis.

The great news is that this simple measurement exists and it is called the Net Promoter Score. It allows you to ask your customers a single question to tell you everything you need to know. That question is:

How likely are you to recommend our company/product/service to your friends and colleagues?

The answer takes the form of a score, from 0 to 10, with 0 being not at all and 10 being extremely likely. To see how this works, please take the Sean on Startups net promoter survey here. I appreciate the feedback!

You then group your customers into three groups based on their response:

  • Promoters (9-10): Customers who love your product and will recommend it to others.
  • Passives (7-8): Customers who are ambivalent.
  • Detractors (0-6): Customers who are unhappy and may advise against working with you.

At first, this seems rather aggressive since you need to score a nine or higher to be considered a promoter. However, most people have an inherent ratings bias where they avoid giving very low ratings. Setting the thresholds at these levels adjusts for that bias.

To calculate your Net Promoter Score (NPS) you simply subtract the percentage of customers who are Detractors from the percentage of customers who are Promoters:

Net Promoter Score = % who are Promoters – % who are Detractors

Your NPS can be anywhere in the range of -100 (very bad) to 100 (very good). In most cases it will be in between, with a positive value better than a negative value. For example, in 2013 the Apple iPhone had an NPS of 70, Costco had an NPS of 78 and Southwest Airlines had 66 (source).

What then do you do with this number?

The most common use is to compare your NPS to average NPS scores for your industry. There are many resources available to do this and the more narrow your industry the more useful the benchmark. You can also easily find NPS scores for companies and products online.

This should also become a core metric for your business that you track on a regular basis. It is fast enough that you can survey your customers on a regular basis and track your NPS over time. In fact, Survey Monkey even has a pre-built template (which I used to create the survey for this blog). If you want to measure NPS on a very frequent basis (say monthly) it is a good idea to randomly sample customers for each survey as even this short question can lead to fatigue if you ask it too often.

The NPS is not a replacement for talking to your customers, which you should still do on a regular basis. However, it does provide an objective and quantitative measurement for customer satisfaction that you can use to measure your progress over time.

So, are your customers happy? Ask them one question and find out.

Are You Sure You Are Solving a Problem?

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“So, what’s your idea?”

If you’ve ever talked about starting a company, that is the first question you always hear. It’s a simple question, but implies that companies are built from ideas – moments of inspiration where you see something no one else has seen. In reality, that is almost never true. Almost every kind of business model has been tried at some point in history. With 7 billion people on Earth, chances are that there are a few people with the same ideas that you have.

What, then, are great companies built on? There are billion-dollar companies being started right now, somewhere, by someone who is most definitely not a billionaire yet. What is their secret?

Great businesses are built by solving problems. A problem is the difference between what a person wants/needs and what they can get today. Some example problems and the companies that were built to solve them:

  • I can’t find anything on the internet. Google
  • I don’t have time to stay in touch with my friends. Facebook
  • I can’t figure out how to file my taxes by myself. Intuit

Even video game companies are solving a problem – they help you avoid being bored and make you happy. Some of these might not seem like problems because they have been solved so well by these companies, but if that company disappeared the problem would reappear. Not all problems are created equal, as problems can range from minor inconvenience to life threatening. You can often tell the difference by understanding how much a person is willing to pay to make the problem go away. For example, someone might be willing to pay $0.99 for a mobile game to entertain them for a few hours, but they would pay thousands of dollars for a new chair that relieves their back pain.

Almost all problems have solutions that already  exist but can be improved. For example, in the early days of the internet the biggest problem was how to find anything. Yahoo solved this problem with their directory. Then Alta Vista, et al, solved the problem more effectively with search engines. Then Google solved the problem even more effectively with a more advanced search engine. I expect sometime soon that there will be an even better solution, continuing the cycle of solution improvement and company creation.

If you can solve a difficult problem in a way that is cheaper, easier or better than existing solutions then you create value and can make money. The more acute the problem and the more valuable the solution the more money you can make in solving the problem.

But wait, you say, what about Snapchat and Facebook? They were started by teenagers and solve no obvious problems, yet have become huge! Well, the irony of life is that you don’t need to be aware of a problem (or how big it is) in order to solve it. In many cases, companies that are overnight successes hit upon problems that no one else was aware were problems (or that could be solved). No one understood a huge problem with existing social networks until Snapchat provided an alternative, surprising even the Snapchat team themselves. You can get lucky in this way, but it’s rare.

Starting from a problem provides a very useful framework for focusing your business as you grow. By always starting from the problem:

  • It is easier to formulate your marketing messages and sales pitch. Instead of trying to explain what your company does, you can explain the problem and how you solve it.
  • It is easier to identify your key customer segments by ranking potential customers by how much they suffer from the problem. You can avoid a lot of wasted time in exploring various customer segments.
  • It is easier to measure your performance by choosing metrics that indicate how well you are solving the problem. If you are trying to save people money on buying cars but the average customer only saves $5, then you are not effective in your business.

After you choose your problem, I suggest posting it somewhere prominently in your office. Reminding everyone on your team, day in and day out, what problem you are solving will bring focus to everything you do.

So, what problem are you solving?

How to Avoid Naming Your Company “Brain Rocket”

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Naming something is very, very hard. Not only is it hard to choose a distinctive name that describes your product or company, almost all of the good names are already taken. There are naming firms who charge hundreds of thousands of dollars to help large companies choose new names, and even then they often end in disaster. So, how should you pick a name?

While there is no silver bullet, it helps to have a process. In addition to reviewing the process, we will practice on a fictitious company and try to give it a name. For this exercise, let us assume we are starting a new consulting company that will help set up IT infrastructure for small businesses. 

Step 1. Metaphor
All of the best names are based on metaphors that describe what the product or company does. Literal names (such as The IT Company) are rarely distinctive enough to be remembered and easily confused with other, similar companies. The more creative your metaphors the more distinctive your name and the easier the naming process will be in the future.

For our example IT consulting company, what metaphors work? Since IT touches almost all aspects of business these days, the company will provide a wide range of services to help smaller businesses grow. Any metaphor that involves getting bigger over time would work well here, including construction and stacking. The word “grow” is interesting and seems to fit well with gardening or farming so let us choose the metaphor of gardening.

Step 2. Word Association

It’s time to exercise your creative muscles and play word association with the metaphors you chose in Step 1. The goal is to create a large list of words that relate to your metaphor, as many as you can. If your creative muscles are out of shape you can use online tools to help generate a list of source words related to your metaphor.

Based on our gardening metaphor you might come up with the following list:

  • Seeds
  • Sprouting
  • Green
  • Watering
  • Harvest

Some companies choose to include more descriptive words in their name to avoid customer confusion. It also makes finding a domain name significantly easier since all single words are taken. Some words that describe IT infrastructure:

  • Technology
  • Infrastructure
  • Hardware
  • Networking
  • Installation

Step 3. Try some names

It’s time to combine the words from our word association exercise, creating a list of potential names. It is okay if they are horrible since we’ll filter them out later. Note that combining the words into new names can take any form you like and sometimes the best names come from combining two words into one. For this exercise we won’t invent new words, just create compound names:

  • Seed Technology
  • Harvest Installations
  • Sprout Networking
  • Green Hardware

Of those, “Green Hardware” and “Seed Technology” sound like biotech companies so let’s throw that out. That leaves us with two potential names:

  • Sprout Networking
  • Harvest Installations

At this point you need to be practical. Check available domain names to make sure they are available and/or affordable. Use a service like 99 Designs to have some example logos created for your names to see how it looks. Talk to your friends and associates about the names and get some input.

It is possible that after all of this you end up with no good names, forcing you to start over again. For a given product I typically find I have to repeat this process 2-3 times before I end up with some really good candidates. If you are lucky you will find a name you really love, but often you will find a name you can learn to love.

I hope that helps. You could always just fall back on naming it after yourself (it worked for Bloomberg) and there isn’t really anything wrong with that. In the end if you have a great product or service, treat your customers well and deliver on your promises it won’t matter what your name is – people will remember it.

NOTE: This post is adapted from an answer I posted on Quora in Startup Advice and Strategy.

5 Metrics to Run Your Business

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Whether you are running a company, driving a car or flying a jet you need a dashboard to tell you how you are doing. One of the most common mistakes is to fill up your dashboard with dozens of metrics covering every aspect of your business. The problem with this “kitchen sink” approach is that it is actually harder to understand how your business is doing. With a dozen different metrics, most days half of them will be up and half will be down – so how are you doing?

Focus on the fewest number of metrics that will allow you to understand how your business is doing. For example, I typically suggest companies use the following five metrics as their dashboard:

  1. Customer Acquisition. How many new customers are you adding every day (or week or month)? This is an important measure of how healthy your marketing efforts are working since this is the top of your conversion funnel. Depending on your business this may be new registrations, first time purchasers or application installs.
  2. Customer Engagement. How active are your customers? Just because you acquired them does not mean your customers are active and using your service. Do they use the product every week? day? hour? If your customers aren’t using your service then it’s only a matter of time before they churn out and are no longer a customer so this is your most important metric.
  3. Customer Retention. How long does someone stay a customer? This is critical to understanding your business model because this allows you to model customer churn. If it costs you $5 to acquire a user but they only stick around long enough to make you $2, then your business is upside down. The higher your customer retention, the easier it will be to grow your business.
  4. Revenue. How much money do you make every month? Focusing on daily or weekly revenue can be very noisy so for running your business focus on monthly revenue. In some cases, it might be more useful to measure revenue per customer in order to calculate a customer lifetime value.
  5. Cost. There are two kinds of cost  you might want to measure, depending on your type of business. Burn rate is how much money you spend every month on everything including salaries, rent and services. Customer acquisition cost (CAC) is how much you are spending to acquire every new user. If CAC dominates your costs then you should measure that, otherwise use the overall burn rate.

You will find that you cannot improve what you do not measure, but you will focus on improving whatever you do measure. If you can maximize acquisition, engagement, retention, revenue and cost you will have a very healthy business on your hands.

These five example metrics might not work for your company, but I bet there are five that do. Think about it and choose them carefully, they will be your guide through rough seas.

Never Play Fair

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When you are starting a new company you are, by definition, the underdog. Your market may have established competitors with massive resources, or maybe the market is new and unproven. As the underdog you are at a disadvantage in the game of business and if you play the game by the rules you will lose.

So, in order to win you have to cheat.

Cheating in business means having an unfair competitive advantage, something that competitors (and the market) can’t easily replicate. There are many kinds of competitive advantages and I’ve listed a few of them below.

  • Technology. A technology advantage allows you to do something no one else can do. The technology could be some new kind of software, new production process or new mathematical model. Any technology advantage is really a head start because someone else will find a way to replicate your technology in 6-9 months. Yes, even if you have a patent. However, that 6-9 month head start is a lot of time to make use of your technology to build other advantages, or continue to improve the technology to extend the head start. Examples: Google, New Relic.
  • Cost Structure. A cost structure advantage means that it costs you less to provide the same or better service than existing competitors (sometimes this is called a “new business model”). Maybe you outsource labor overseas, have volume discounts or have a better process that requires fewer people. Cost structure advantages can last longer than technology since established competitors often have trouble making fundamental changes to their business. New entrants won’t have that problem so you can expect other start up companies to copy your model quickly if it works. Example companies: Amazon, Walmart.
  • Happy Customers. An existing base of happy customers is a huge advantage. Customer acquisition is one of the biggest costs for any business (especially marketplaces) so if you have already acquired customers it becomes that much more expensive for competitors to take them from you. However, they need to be HAPPY customers so you need to continue to invest in customer satisfaction to maintain this advantage. If your customers become unhappy then this becomes a liability quickly. Example companies: Uber, Etsy, Airbnb.
  • Data. If you know something that no one else knows you have an advantage. The trend of Big Data is really just a translation of the data companies already had into a competitive advantage. This is the most maintainable of the competitive advantages since it is a lot like a trade secret – managed correctly your competitors will never know what you know. However, it’s also the hardest advantage to translate into revenue since you need to use it to create new technology, make your customers happy or improve your cost structure. In the best case scenario you can get customers to pay you for your data. Example companies: Facebook, Twitter.

There are, of course, many more possible advantages. The best companies have more than one of these and the struggling companies might not have any. I recommend picking out some companies you respect and thinking deeply about their competitive advantage; it is not always what you think.

When you are getting started it is important to know what your competitive advantage is or what you want it to be. Everything you do should make use of your advantage or help strengthen it. That is how you cheat, you use your advantage to compete and win.

This makes prioritization for your company easier because you stop asking the questions “What can we create?” and “What can we sell?” to “Where do we know we can win?“. Playing an unfair game is how you win and you make the game unfair by maximizing your advantage.