Read an Excerpt
Evergreen
Cultivate the Enduring Customer Loyalty That Keeps Your Business Thriving
By Noah Fleming AMACOM
Copyright © 2015 Noah Fleming
All rights reserved.
ISBN: 978-0-8144-3444-4
CHAPTER 1
Debunking the Myth
New Customers Will Not Save Your Business
In November 2011, Rachel Brown's bakery, Need a Cake, received the kind of attention many people dream of but never expect to actually get. Feature stories were written about her in The Telegraph and on the Huffington Post, MSNBC, and BBC websites, among others. It was the kind of publicity that would, in almost all cases, be unattainable for a small shop like hers.
After twenty-five years in business, Brown was in the news because her small bakery had done something phenomenal. She had enticed more than 8,500 new customers to her shop in the blink of an eye. But before I share the details about what happened and how Brown got this influx of new customers, I want to ask you a very simple question: Is it really a good thing for a business, of any size, to get 8,500 new customers practically overnight?
Before you answer, let me ask another question: When you hear Brown's story, are you thinking about the amount of additional revenue your business could receive if you were able to attract 8,500 new customers? Are you envisioning those empty parts of the day when you find yourself wondering whether anyone might actually walk through the door? If this sounds familiar, you're not alone. Most people—especially small-business owners—think just that. Of course, larger organizations can learn from this story, too, which is my intent.
In this chapter, I'm going to take on the myth that new customers will save your business. It's a myth that businesses, both large and small, believe wholeheartedly. On the pages that follow, I will demonstrate that new customers are, in fact, a mixed blessing and, further, that putting all your energy into the pursuit of new customers can actually destroy your business. I'm not saying that new customers are inherently bad. Of course not. Obviously, every business needs new customers to grow and thrive. But in almost every case in every company, focusing on getting them takes a tremendous amount of time, effort, energy, and money away from areas where it would be much better spent—like developing deeper relationships with your existing customer base.
The theme of this chapter is simple. If you had the choice, would you want to bring in 100 new customers and watch 50 (or even more) of them run away, never to return again? Or would you rather make a few simple changes to ensure you are consistently strengthening your business relationships with your existing customer base, while also putting new structures in place to make your business entirely Evergreen, where new customers can both flourish and grow with your organization, bringing long-term and perpetual profits? The choice should be obvious.
THE ALLURE OF NEW BUSINESS CAN BE FATAL
Let's get back to Rachel Brown and her gourmet cake shop, which she owned and operated in Reading, England. Business was good, but business can always be better. She'd heard of this new website called Groupon, where she could offer potential "new customers" a discount to try her service. Groupon offered her a flood of new business—and the company certainly lived up to its promise.
If you are not familiar with Groupon, here's how it works: A company will offer a significant discount off its products or services—sometimes as high as 75 percent. Customers then purchase the discounted coupon (called a Groupon). The customer wins by scoring a great discount at a local business. Groupon wins by taking its cut (a percentage of what's left after the discount—usually another 50 percent). Finally, the business "wins" by attracting new customers. (In reality, though, the business is paid whatever is left over, plus credit card processing fees. In other words, for every $100 Groupon, the business might receive fewer than $25 after all is said and done.)
Brown's promotion worked—a little too well. She was swamped. In fact, she suddenly found herself inundated with more than 8,500 new customers! She had to hire emergency staff to handle the orders that were coming in, but they had barely a fraction of the training and experience of her regular employees. All of this led to a drop in the quality of her product and the quality of her service. Those new customers likely didn't walk away from the experience telling their friends about the best red velvet cupcake they'd ever eaten at Need a Cake. Instead, they probably said something like, "I stood in line for so long to get this!"
Many fatal business mistakes can be traced directly back to a company's focus on acquiring new customers, its lack of appreciation of existing customers, or its lack of understanding customers' wants and needs. Unfortunately, in Brown's case, the misstep wiped out nearly a year's worth of profits and left her deeply regretting her decision. Brown later said, "Without a doubt, it was the worst business decision I ever made."
To be fair to Brown, her worst business decision ever wasn't entirely her fault. The horror stories of companies, especially small ones, sideswiped by the allure of new customers are all too common. Groupon, for example, can be an absolutely wonderful customer acquisition tool for many businesses. But for all the brilliance and effectiveness Groupon brings to getting new customers through its clients' doors, it is monumentally bad at helping those businesses keep their new customers—an area where I believe Groupon has dramatically underserved its client base.
WE'RE ALL ADDICTED TO SEX—AND WHAT THAT MEANS FOR YOUR BUSINESS
To understand what really went wrong with Brown's business, we need to first understand, on a deeper level, why businesses are so focused on getting customers and not on keeping customers. It's easy to understand the draw for a small business. As the late management guru Peter Drucker often said, "Without customers, there is no business." Customers are the lifeblood of any business, and for a small business the allure of the new customer is sometimes too great.
Let me share with you a story about an experience I had with my own bank. I had applied for a commercial line of credit for my consulting company and was promised everything would be completed within forty-eight hours. Nearly two months later, my line of credit was finally completed. When I asked the manager why it took so long, he said flat out, "Honestly, Noah, we're so busy with new customers that we don't have the time and resources to devote to our existing customers." Before you scream and pull your hair out, recognize that the manager simply told me what many organizations, including perhaps your own, are going through at this very moment. The reason: We're all addicted to sex.
Let me explain. In 2012, I presented the closing keynote address to more than 400 publishing executives at their annual conference in Washington, D.C. I began the lunchtime talk with a slide that read, "We're all addicted to sex!" The clanging of knives and forks went silent as I watched people scramble to find their notebooks, open their laptops, or clean up the water they had just spilled on themselves.
I didn't plan to start this way, but I had just spent three days sitting in on various sessions at the conference and listening to other speakers. Three out of every four presentations were focused on split testing different text colors and fonts in e-mails (HTML or plain text, size 12 or 14 headlines) as well as optimal sending times (Tuesdays or Wednesdays) and other assorted minutiae of marketing campaigns. The companies presenting this data had certainly done some innovative and creative testing, but it was extremely worrisome to me to see how many businesses, large and small, online and off-line, were more enamored with trying to determine whether it was better to send an e-mail at 9:30 a.m. or 10:26 a.m. than they were with ensuring that the e-mail had something interesting or relevant to say.
The Thrill of the Chase
In the marketing world, retention is boring and optimization (especially around acquiring new customers) is sexy. It feels great, and you get practically immediate feedback on how good your marketing is and if it's working—very similar to, well, sex. When a large organization steps up to the plate and spends big bucks to run something like a Super Bowl advertisement, it's pretty simple to measure results almost immediately after the campaign runs. Websites crash, customers tweet, fans like the Facebook page, and sales increase. It often provides instant gratification, and it feels good—again, very similar to, well, sex.
No question about it, the ability to stimulate immediate sales is sexy. But I'm not convinced it is doing us any good in the long run—especially when those same organizations aren't focused on keeping the customers they just spent Fort Knox to get. I work diligently with all my clients to keep them from getting so wrapped up in their sex addiction that they forget to love their customers. Immediate marketing results—like impressions, conversions, traffic, sales, e-mail open rates, and new subscribers—is all really attractive stuff. The thrill of the chase. The satisfaction of the successful seduction. I get it. But it's got nothing on long-term customer retention, which is more analogous to love. Love involves having a relationship with your customers, it survives long past the initial glitz and glamour of that first encounter, and it's ultimately far more fulfilling for both parties.
The Power of an Alternate Mindset
There's an old analogy in the business world—the Leaky Bucket Theory. This analogy suggests that most businesses operate like a leaky bucket. The idea is that your business is the bucket and the water in your bucket represents your customers. The holes in the bucket are the various areas where you lose your customers. Most businesses tend to focus on adding more water instead of simply fixing the holes. But I digress. We don't have leaky buckets. We have deciduous trees. Deciduous companies like to invest heavily in marketing, and, more often than not, their marketing works.
My bank was busy. Banks have no problem putting new leaves on the tree. They are swamped with new customers, but like those on a deciduous tree, these leaves stayed temporarily, because as soon as banks close the deal, they move on to bigger and better things—the "more exciting" new customers. My bank was willing to lose me, a loyal, longtime customer with a considerable amount of future value to the organization, because it was too busy focusing on new customers. Instead of banking on an asset, it was gambling with its reserves—no pun intended. Many organizations don't realize that this mindset is costing them millions and millions of dollars. They fail to recognize the true costs of a new customer focus, such as the additional time, effort, energy, and money required to persuade these customers to buy from them in the first place, and the opportunity costs associated with trying to appeal to these new customers.
My client experience has demonstrated that when an organization can truly understand, and integrate, the relationship between its profit, growth, longevity, customer relationships, employee empowerment, and customer service, then real, impactful, tectonic shifts are generated on its financial statements. This is also the single best way to ensure a business can become Evergreen. Let me say that again:
If you want to experience dramatic growth within your organization, you must truly understand the relationship between profit, growth, longevity, customer relationships, employee empowerment, and customer service.
The cost of ongoing customer engagement is nothing compared with the cost of acquiring new customers.
THE LATEST BOARDROOM BUZZWORD: CUSTOMER-CENTRICITY
I'm sure you've heard about the concepts of "customer-centricity" and "big data," especially if you work in a large organization or read the business section of The New York Times. The problem is that most people use these terms without truly understanding them. I'm bothered by the many organizations that claim to be customer-centric on paper but haven't internalized the concepts or truly put customer-focused initiatives into action. I can't state it much better than management consultant and author Jay Galbraith, who wrote that a majority of companies claim to be customer-centric with nothing more than a "cosmetic gloss of customer focus sprinkled around the edges." My goal as a consultant is to help companies go beyond a cosmetic gloss. I'm more interested in your organization getting a permanent tattoo of customer focus. When you are tattooed with a message, you've internalized it and there's no turning back.
What Does It Mean to Be Customer-Centric?
The term customer-centric has been getting a lot of attention lately in the business world, though, as with many business buzzwords, everybody seems to have his or her own definition. In a 2010 article in the Harvard Business Review, Harvard professor Ranjay Gulati defines it as "looking at an enterprise from the outside-in rather than the inside-out—that is, through the lens of the customer rather than the producer."
Wharton professor Peter Fader uses this definition: Customer-centricity is "a strategy that aligns a company's development and delivery of its products and services with the current and future needs of a select set of customers in order to maximize their long-term financial value to the firm."
Actually, the ideas behind customer-centricity go back a long time. More than fifty years ago, Peter Drucker was talking about customer-centricity when he made statements like, "A company's primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company's continued existence. There is only one valid definition of business purpose: to create a customer."
You'll find Drucker's books inside almost any executive's office. Have those executives simply failed to grasp the true meaning of his words? Or is the constant pursuit of new customers with disregard to existing customers a simpler, more exciting ambition for companies? As customer-centricity takes a prominent seat in boardrooms everywhere, I believe we need to get clear on this.
What Will a Customer-Centric Mindset Do for Your Business?
We are living in a new era of how business is conducted. In fact, this is a profoundly revolutionary time to be operating a business. Our customers are more knowledgeable than ever before. Not only that, they have gained the upper hand in their ability to exert, expect, and demand the way they'll do business and with whom. For an organization to survive it needs to think about its customers and their experiences in an entirely new way. So what's next?
We need to dig a deeper hole for our Evergreens—to ensure our root systems have the room they need to spread and grow. That's what's next. This is why the concept of customer-centricity is so important. In Fader's definition, customer-centricity is really about customer selection—identifying the most profitable group of customers and focusing attention and resources on them to encourage greater participation, retention, and ultimately profitability. Today, we know more about our customers than ever before. But knowing more or using fancy phrases at our strategy sessions means nothing if we're not able to use that knowledge wisely.
You've probably all heard of the 80/20 rule, also known as the Pareto principle. It states that for many events, roughly 80 percent of the effects come from 20 percent of the causes. In my consulting work, I've found that the 80/20 rule remains true in almost every business, of every size, regardless of industry. The top 20 percent of customers generate 80 percent of profits. Our mistake, however, is that we are not spending enough time or resources on the top 20 percent. Remember, just having access to a lot of data and claiming to be customer-centric doesn't mean you are truly focused on what's best for the customer.
THE TRUE VALUE OF A CUSTOMER
What's a customer really worth? Now, this is a tough question—one that many organizations struggle to answer properly, but it is certainly an important one to discuss. Later in the book I'll bring you back to planet earth and make a few commonsense, on-the-ground suggestions, but for now, let's explore how most larger organizations determine the value of a customer and expose a number of misconceptions tied to the way it's currently done.
(Continues...)
Excerpted from Evergreen by Noah Fleming. Copyright © 2015 Noah Fleming. Excerpted by permission of AMACOM.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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