Hello! This is my first newsletter about customers. We’ll look at other things as well, but it’s mostly about customers. Let’s set the stage:
If we wanted to build out a simplistic model for a business, we could start by adding in various stakeholders and then explaining the relationships and the way money and commitments flow between those stakeholders. We might start by adding the shareholders, the people who own the business. They’re putting their capital—their money—at risk in hopes that the business will be successful. Next we’ll add employees, the people who work for the business. They want to get paid for doing work. Lastly, we’ll add customers. The employees are going to deliver a product or service to customers in exchange for the customer’s money, and if there’s more money in the business at the end of the year than what the business had at the beginning of the year, the shareholders will be happy1.
Let’s sum up the relationship in terms of money: Shareholders invest money in hopes of generating a return on their investment. Employees receive money in exchange for their time and work for the business. Customers give money in exchange for a valuable product or service.
It’s of course more complicated than that—there are other stakeholders like suppliers, governments, lawyers, etc—but I like this as a basic model to explain the motivations of the stakeholders of a business and to figure out how it runs at a basic level.
The other reason I like this model of shareholders, employees, and customers is because it will offer guidance on where to focus. I’m especially interested in knowing where to focus when money is involved, which is of course always. Everyone is worried about money. Shareholders want to make more money and may be worried they’ll lose all their money if the businesses they’ve invested in no longer exist. Employees want money in exchange for work and may be worried about not having money if they lose their job. Customers are worried about…wait, what are customers worried about?
What are customers worried about? What do they care about? What do customers find valuable? What’s going to generate a return on investment for them if they’re doing business with us? What passions—anger and fanaticism among them—drive them to make decisions?
The question of what customers care about is the most fundamental question for any business. They’re the only stakeholder consistently putting money into the business in the form of revenue. Employees take money out of the business. Shareholders put their money in, but they’ll want (more of) it back. In order for the business to survive and continue to serve the interests of its shareholders, employees, and customers, it must focus on what matters to customers. Customers are where the money comes from.
Every business exists because of its customers, yet so many businesses seem to lose sight of their customers and what their customers care about. Why? This newsletter exists to answer that question, over and over and over, and I suspect I’ll never run out of things to write about because 1) business really care a lot about money, and the only place they can get it is from customers and 2) businesses are really good at not focusing on customers. And that includes me.
Customer Support
Take for example a a customer support ticket I was working on recently. My focus for that particular time of day was “get to inbox zero” and for that particular moment was “make this ticket go away so I can get closer to inbox zero.” Everyone who has ever worked in customer support knows the sweet sweet dopamine hit that comes from churning through a backlog of tickets.
Anyway, I was following up with one of our customers who had been affected by a bug in our application. The fix was already scheduled to go into production, so in order to resolve this ticket, I really just needed to give the customer an update on when the fix would ship. Pretty straightforward, and one step closer to inbox zero.
Let’s pause here. At that moment, I was doing work in customer support. Customer. Support. But was I really focused on the customer? Not really! I was focused on getting to inbox zero! Make that ticket go away! Of course, I wanted to do a good job in my service of the customer, but really I’m just trying to keep the overall system of support humming along.
I could have sent the email as is, but I noticed something was missing. Even though there were about half a dozen messages back and forth, nowhere could I find how this bug actually impacted the customer. So before I hit send2, I added a paragraph to ask the customer how this bug was impacting their business and their ability to get value out of our product. The customer’s response, paraphrased:
We’ve been using the free version. Since my boss knows that I have previous experience with FullStory, he wants me to decide whether or not it’s worth us upgrading to the paid version. This bug is making it difficult to make the business case for it as it stands.
Wow. What we had thought was important to the customer—“this bug is making it hard to use your software"—wasn’t nearly as important as "I’m having a hard time justifying paying for your software because nothing seems to work, which is a bummer because I put myself out there in recommending you to my boss.”
My point is this: all of us, whether we’re a shareholder or employee at any level within an organization, will necessarily lose focus on the customer. We’ll focus on making sure the company survives, preserving ARR, rightsizing headcount, shipping clean code, getting the support queue down to zero, closing that deal. The importance of that work, whether it actually matters, all depends on whether or not it’s meaningful to the customer. Whether in our individual roles or collectively as a business, all of our work must matter to the customer. They’re the ones who ultimately determine if employees get paid and shareholders make a return on—or preserve—their investment.
Where to focus in a recession
In the midst of a global pandemic, shareholders care a lot about preserving their investments, which means they’d really like for the companies in their portfolio to still exist when life returns to something that resembles normal. Existing businesses return a lot more to their shareholders than non-existing businesses. Yet even in the midst of economic uncertainty, it’s still true that we must focus on what customers care about to get through this economic contraction. That hasn’t changed.
Here’s how Isaac J Roth of Shasta Ventures, put it recently:
Who are our customers? Are they going to be in business? Are they growing or shrinking? How important is our service to them, truly? Does our service sustain their business or does it make their business more efficient? Do they depend on us or would we be less valuable if labor was less expensive? If they are seeing contracting revenue and must reduce spend, will they lay off staff or will they stop using our software? If we think about our own businesses are we going to lay off staff or reduce the fees we pay to use services? What will our customers do? …
After asking this series of questions and those related which we can think of to help put ourselves in our customer’s mindset, we then pick the plan which seems most likely. The plan might be wrong but the art of the startup is making difficult decisions with a real lack of information… then carrying them out with conviction.
He’s guiding managers on how to think through an economic contraction, but the very first step on that journey is “putting ourselves in our customer’s mindset.” You can’t come up with a plan to save your business if you don’t know what customers care about.
Because of the necessary modeling that so many businesses are doing to understand the value they’ll be able to deliver to customers—and ultimately the revenue that will be generated as a result of that value—many managers are arriving at the difficult decision to lay off employees. Yet even in these decisions, we’re reminded where we stand in relation to our customers. As Henry Ward shared in communicating Carta’s layoffs (emphasis mine):
Even though the analysis starts with customers, it quickly starts affecting all parts of the organization. This makes sense. We exist only because our customers exist and allow us to serve them. And when our customers suffer we suffer too.
These are hard times. Businesses will contract, some will be eliminated entirely, and entire industries will lose workers en masse. But new businesses will start up again and the ones that thrive will have one thing in common: they’ll be focused on customers.
Etc.
Things I’ve read:
From the FullStory blog, 8 Actions You Can Take Now to Prepare Your Business for the Next Normal (disclosure: I work for FullStory)
Also from the FullStory blog, Pivoting in Crisis: How to Deliver Value to Your Customers Right Now and Drive Long-Term Loyalty
Expensify CEO David Barrett leads with customer support response times to explain business’s response to Covid-19
Eye placement and vision explains a lot about where an animal exists within a food chain. via @richarmstrong
This was the first Customers, Etc. newsletter. What’d you think? What would you challenge me on? Hit the thumbs up / thumbs down at the bottom of the email.
Okay, in some models, especially for start-ups, shareholders are willing to exchange short-term profits for long term growth. But the business must eventually be profitable for all shareholders to benefit.
This wasn’t just some “aha” moment for me. We’ve trained the support team to ask this question and even have a macro built out with suggested copy to use. A lot of times focusing on the customers means continually calibrating our systems to continue focusing on the customer.