Finalizing Your Technology Development Plan? Better Talk to Marketing First!

Most startups get a great new idea, and their immediate instinct to start coding away on building that product with their very limited budgets. They put on the hat of a consumer using their technology and do their best to build a functional user experience in line with their original vision (which is a perfectly reasonable and expected part of launching a startup). But, then they launch their product and realize no new customers are showing up.

Read the rest of this post in Forbes, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

[EVENT] Hear George Deeb Present Ensemble's Startup Excubator Model at @TechweekCHI on 6/27 at 1pm

As many of you know, Techweek Chicago is in full swing this week. Red Rocket's George Deeb will be speaking about Ensemble's "startup excubator" model on Friday June 27th at 1:00pm, followed by a breakout session for Q&A at 1:30pm.  If you are already going to be a Techweek, please swing by and listen in.  We would love to have your participation.  Hope to see you tomorrow!!

For future posts, please follow Red Rocket at: @RedRocketVC.

Lesson #180: How Retailers Can Combat Showrooming

Let’s face it, we have all done it.  We walk into a retail store to find a product we want.  We browse their huge selection of inventory.  We talk with their highly-trained salespeople.  And, then, the inevitable in today’s mobile generation:  we pull out our smart phones, scan the product barcode and see if we can find the same product for sale online, at a materially lower price.  At which point,  we end up walking out of the store to buy it online, and the retailer is out on all their marketing, inventory, staff and real estate costs without the sale.  This concept is called “showrooming”, and here a few ways offline retailers should combat it.

DON’T FEAR THE INTERNET, EMBRACE IT

Like Best Buy, offer “low price guarantees” to give customers peace of mind.  Help them do the research online to help them find the lowest prices.  That way, the consumer doesn’t feel guilty about doing that same research on their smart phones, and you don’t lose the sale (as a low margin sale is a lot better than no sale, in this scenario).  Or, train your customers to buy from your online website, and not the stores, where they can save money from lower prices.

DON’T FEAR SHOWROOMING, EMBRACE IT

Thinking out of the box here, maybe retailers should reach out to their vendors, or even their online competitors, and strike showroom partnerships with them.  Vendors are not going to want a key retail partner to go out of business, and perhaps, they would share in showroom staff costs to protect their own revenues.  Or, maybe they will agree to distribute inventory on a consignment basis, so retailers can lower inventory costs and risks, to better compete on price.  This same logic applies to online competitors, who know offline stores are helping them drive online sales, and could look at the retailers as marketing partners for them?

DON’T FEAR MOBILE, EMBRACE IT

Turn a consumers’ smart phone from a weapon in your store, to an asset in your store.  Build stand-alone apps that improve the users’ experience in the store and help get them into your marketing lists, even if they end up buying elsewhere.  This could include allowing them to scan bar codes for past customer reviews about products, or pushing them specific offers within the aisle when they pass by inventory you are trying to move, or upselling bundles of products or services that make it more difficult to compare prices.  You get the point. 

DON’T LET PRICE BECOME YOUR KEY DIFFERENTIATOR

The worst thing you can do is make price your only point of differentiation.  Where you can, look for exclusive inventory that is only available for sale in your stores.  Or, make the customer service experience so exceptional, with well-trained staff or unique add-ons and offers, that they have no choice but to want to buy from you.  Abt, a highly successful consumer electronics and appliance store in metro Chicago is the pro at this.  They staff plenty of highly-trained salespeople that are available anytime you need them, are not pushy and are free to lower prices with consumers, if it helps them close the sale.  And, they get that lost product margin back to the business by upselling high-margin installation or extended warrantees on the products sold.

ARE THERE SMALLER FORMATS OR ALTERNATIVE USES FOR THE SPACE

Retail locations clearly help with marketing and getting your product closer to consumers, no doubt.  Maybe there are more efficient ways of setting up your stores, to get more done with less space.  Or, if you are locked into long term leases, maybe there are ways to get another partner to share in your space.  I thought it was a very smart move for Best Buy to allow Samsung to become an exclusive store-within-a-store experience.  In one move, they got someone to share in their costs, and help them to try to replicate the enviable Apple store experience.

DO YOU NEED THE RETAIL PRESENCE?

If the above does not succeed, ask yourself :  do I really need the brick and mortar presence at all?  It didn’t take iTunes and Netflix long to prove that a Borders or Blockbuster store no longer had a need in the market.  Perhaps, that is why Barnes & Noble is still with us with their quick shift to Nook and digital content?  Or, think about  Staples.  They are doing around $23BN in annual sales, around half of which is coming from their website.  Even if they shut all of their stores, to focus solely on e-commerce, and potentially lost half of their revenues in the process, their costs would be materially lower (without rent, inventory, staff) and their valuation multiple could materially expand (from 1x to 3x revenues), potentially valuing the company at about the same level as they are today.

Retailers are clearly feeling the pressure from online competitors and customers armed with mobile devices to help them research.  But, instead of retreating, go on the offensive to make yourselves relevant again, as simply selling the same products in an old-school retail way, is no longer enough to survive.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #179: Reduce Customer Churn to Accelerate Revenues

Customer churn is one of the most important metrics a startup can measure and reduce over time.   Churn is basically the percentage of customers that stop shopping with you in a given period, typically calculated for businesses with recurring monthly revenue streams.  The higher your churn, the poorer job you are doing at retaining your customers.  And, worse yet, instead of getting lower-cost marketing efficiencies from retention marketing to current customers, you are back fishing again in expensive pools of fish for new customer acquisition.

As a benchmark, I would try to keep your monthly churn rate below 2.5% of lost customers per month, since it is unreasonable to assume you will keep 100% of your customers in perpetuity, with a 0% churn.  So, put the tracking in place in your business to measure this key metric, to see how you are performing each month.  And, then optimize it accordingly.  And, why does this matter?  The difference between a 2.5% churn and a 5.0% churn, could be the difference in building a 50% larger business in a five-year period of time.  So, although you may not identify an immediate problem today, it certainly adds up over the years, if left unchecked.

So, what causes churn?  Customers are obviously unhappy with your product or pricing.  So, to reduce churn, you need to be surveying your former customers to figure out why they left.  And, then put a plan in place to address those issues in your current offerings, so current and future customers stick with you, and you can more quickly grow your business with the lower churn rate.

There was a really great blog post on this topic written by David Skok , a serial entrepreneur and VC at Matrix Partners, back in 2012.  It has some great case studies worth re-reading today.  More importantly, he introduces a concept called “negative churn”, which basically means your upselling and cross-selling from retained customers, offsets any revenues lost from customers who cancel services.  I thought that was very good wisdom, as “landing and expanding” with current customers, is obviously a lot easier than trying to drum up new customers from scratch.  And, the difference between a negative and positive 2.5% churn, is building a business that is almost 3x larger in a five-year period of time.

So, it is critical you are always talking to your customers, looking for areas for improvement, especially as it relates to long-term client happiness and retention.  Fix what they don’t like.  And, deepen what they do like.  And, where you can, look for ways of increasing the stickiness of your product or service, making it painful for customers to leave you.  Maybe it’s your data, or analytics, or simple integration with their other systems, or whatever else, that keeps them wanting to drink your Kool-Aid. 
 

In addition, make sure you are doing everything you can, operationally, to help reduce churn.  This includes structuring longer term contracts to reduce monthly turnover.  And, it means training your call center reps on how best to turnaround a “cancellation call” into a “retention call”.  And, if they are unsuccessful at doing that, at least turn them into focus group managers, to learn why the clients are leaving, so they can pass that information on to the product team.

If your revenues and growth rate and customer satisfaction were not enough impetus for you to fully embrace the importance of lowering your churn rate, I offer one additional reason:  smart investors are keenly focused on these metrics.  If you don’t know your metrics, you will not look smart to your investors.  And, if you do know your metrics, but they are too low, you can kiss your venture capital financing good bye.

For future posts, please follow me on Twitter at: @georgedeeb.

The Elements of Defensible Barriers to Entry

Anybody can start a business. But, very few businesses started have long term, defensible barriers to entry to protect against potential future competitors. As you know, every good idea spawns many new competitors trying to get a “bite at the apple.”  Creating barriers to entry are one of the key things you need to focus on in terms of building a winning business model and increase the odds you get a big pay day down the road.  Here are a few examples of the elements your company should establish in order to defend from potential competitors.

Read the rest of this post in The Next Web, which I guest authored this week.

For future posts, please follow me on Twitter at:  @georgedeeb.

[NEWS] 2014 @MoxieAwards Winners: Best of Chicago's Startup & Tech Scene

Congrats to all of the winners of last night's annual Moxie Awards event, produced by BuiltIn Chicago, who did a great job, as usual.  You are all well-deserving of your wins, and you are doing great things to make Chicago's startup and tech ecosystem world class.  Keep up the great work!

Best Consumer Web Startup:  SpotHero

Best B2B Startup:  TempoDB

Best New Startup:  Civis Analytics

Best Startup Co-Founders:  Jimmy Odom, Daniela Bolzmann & Kirk Lashley of WeDeliver

Best Service Provider:  VineSprout PR

Digital Agency of the Year:  Rise Interactive

Mentor of the Year:  Chuck Templeton of Impact Engine

Investor of the Year:  Stuart Larkins of Chicago Ventures

Tech Woman of the Year:  Kristi Ross at dough

CTO of the Year:  Aaron Rankin at Sprout Social

Best Software Company:  Signal (formerly BrightTag)

Startup of the Year:  Sprout Social

Best Company Culture:  Centro

Best Enterprise Web Company:  kCura

Breakthrough Digital Company of the Year:  GrubHub

CEO of the Year:  Amanda Lannert of Jellyvision


And a special shout-out to our Red Rocket client, ViaForensics; FireStarter Fund porfolio company, Hireology; and our Ensemble partners, Walker Sands and Ora Interactive, for your nominations.  The full list of nominees can be seen at this link.


For future posts, please follow us on Twitter at: @RedRocketVC.