About a month ago, I had the opportunity to sit with the CEO (formerly the CFO) of a mid-size company. Our friendly conversation moved from cashflow to customer-centric strategy and execution. It was heavy on his mind that the company was trying to isolate and resolve a cashflow issue—sales were high but mid-term projections for a new market segment clearly were not going to meet or exceed their standard revenue/profitability model. He told me he was struggling with several questions: so what’s wrong with the model? and do we need to change the model for this segment? However, I sensed that his fundamental question was a little bit different: why did we go into this new market anyway?

Being the CEO of a company, I, too face cashflow considerations. So with an understanding of the intricacies of cash in and cash out, I delved deeper. What was almost immediately apparent was that what looked like “cashflow” to him was really “customer outflow.” The company was losing about 30-40% of customers for its newest product line every year. Whoa! They were investing significant funds to gain awareness and interest from prospects, and then to cultivate those leads and on-board the customers. Yet those investments were performing more like money spent on the lottery than anything else. You don’t have to be a CFO to know that this is a very expensive and potentially dooming problem.

Anyhow, the conversation turned to how do you first understand why new customers are defecting in droves, and second either create stickiness for those targets or reduce the cost of acquisition because churn is a given. Regardless of whether you’re growing a net-new business or transforming an existing one, customer retention and repurchase rates are essential to driving a successful strategy and to feeding cash into the business coffers. Cash is king, but if the following questions haven’t been thought through, the king’s ability to manage the empire will be limited.

Before entering a new market, consider (or get your marketers to address) these questions:

• What is the purchase and loyalty behavior of customers in this market?
• Can the new market provide the customer retention rates we need to support the profitability model and grow the business?
• When do we break-even in this new market; what services/products must those customers buy; how long do we need them to stick around to keep breaking-even; and when do we hit the profit zone?
• Once we acquire these new customers, what barriers to retention and greater share of wallet will we face?

I was reminded of this conversation when I finally read September’s Inc. Magazine. (Yes, I realize it’s October.) It’s the infamously-large Inc 500 edition where they rank the fastest growing and smartest companies. Well, there was a simple and smart article on page 57 called Keep Your Customers: It’s hard to make the Inc. 500 if you’re always churning clients. I highly recommend it. The author shares a simple story and some personal experiences I think you’d appreciate. Here’s a snippet—

I can speak from experience. My messenger business, Perfect Courier, lost 25 percent of its customers every year, mainly because we were operating in an intensely competitive industry with no barriers to entry and almost nothing to stop customers from switching from one supplier to another if they could save a few dollars. We managed to make the Inc 500 list three times by coming up with ways to tie customers into our service. –Norm Brodsky, Keep your Customers, Inc. Magazine

For some marketers, taking a numbers-driven approach to new market planning and looking in the rearview are painful. Why did you leave is one of the toughest questions to ask your customer. It’s wrought with emotion because no one likes to fail—especially the person managing the account or who sold the deal. But knowing why customers are leaving will help you escape desperate moves to keep customers—deep discounting, giving away services and other non-license revenues, and simply working the customer relationship until it’s no longer profitable. And you know what? Despite all your efforts, the customer often still leaves. Start at the beginning—know the buying, retention and repurchase behavior of markets before you enter them.

As you’ve heard for 100 years: it’s cheaper to keep her. It really is. My advice, know the loyalty and account growth triggers before you enter a market—as you may find that its going to disrupt your growth model. If all else fails, don’t be afraid of the post-mortem. Do it soon enough after an event, and you may win an advocate or reclaim an account.

At the end of the day, new-marketers must bow to the king and queen of finance and put on their financial hats. In a quest to “OWN” a category, we can’t forget the financial side of the process.

Author: Promise Phelon

To this day, I still do a double take when I hear phrases like, “Your customers are your best sales team”; or “Happy customers are like advertisements.” I bristle because that mentality minimizes the work and effort required to create reference customers and positive word of mouth—especially in large and complex business-to-business relationships. I also bristle because factual witnesses make the best, most credible references—not smiling, bubbly customers spewing “ad speak.”

Look—companies with high net promoter scores and vocal customer advocates are not lucky. They’re exercising a unique domain expertise to transform transactions into meaningful, vested relationships. The more we talk about customer advocates as “the sales team” or as “ads,” the more it belittles the power of their contribution to the influencing and selling process…and the more it makes referencable relationships feel like customer = tool.

Several other ingrained thought patterns also lead to a huge disconnect between company and customer as advocate

1. Follow-the-Herd Mentality. When our VP of client services Paula Stout joined the Phelon Group team, we spent many late nights talking about how companies were trained to listen to the market and identify opportunities in a way that didn’t give them an accurate sense of what market they should pursue and how. You probably know that what often happens is industry analysts calculate huge addressable markets, and without reality-checking and honestly vetting—“does this fit our core competence, does our stuff solve their problem, can our sales team really convince someone to buy this, can we deliver to customer expectations”—companies take what the analysts say as law and go after it, head on. That, in turn, often results in the wrong customer or target market… let the games begin.

2. Sales-at-any-Cost Mentality. When a customer is viewed as just another transaction, it’s difficult to do all those “little things” that transform customers into vocal promoters. Customers who become vocal promoters buy from sales people and relationship managers who not only consider “relationship” and “value selling” important, but who also know that part of their job is to make the product, delivery and services folks successful by remembering the little things—like effectively scoping, managing expectations and identifying the central value BEFORE the sale.

3. Customer-as-Actor Mentality. You don’t believe TV commercials and print ads for the same reason many prospects don’t believe references—you know those glowing praises were scripted. Convincing and credible references result from a partnership between marketing and sales where two essential actions occur—a) the customer realizes the call is not an opportunity to read a script and sing praises, but to act as a knowledge expert, consultant, colleague and thought leader in their field, as well as to learn from another company facing similar challenges; and b) when the prospect knows your customer is not just ‘recommending’ you, asks questions, and is honest about their experience.

For the entire end-to-end, step-by-step marketing, reference and sales process to work, a company needs to master its domain of the customer. It is the holiest grail to have customers who PROACTIVELY say great things—it’s not luck, it’s not something you can buy. To say “your customers are your salesforce” shows your company is NOT master of its domain. And it really does minimize how much conditioning, process management and careful attention has gone into creating and spawing a culture of accountability.

There is so much I can say about this…but let me wrap it into a story. A few months ago, I attended a Churchill Club event facilitated by Dave Thomson, a colleague and friend of mine who wrote Blueprint to a Billion—an enormous best seller (and really smart book). Dave was highlighting Blueprint companies, or firms that achieved breakthrough and expontential growth by getting to a billion dollars in sales in less than six years.

Dan Warmenhoven, CEO of Network Appliance, a Phelon Group client, was among the very smart panel speaking with Dave about cultivating and leveraging Marquee Customers, one of the seven principles from his book. While I can’t quote him exactly, Dan said something like this: you can’t pay customers to say great things about you. You have to deliver a remarkable experience that’s worth saying something about.

Remember, the customer you want is the customer who, without de-positioning your company, solution, etc., can speak honestly about and show evidence for why someone should consider your wares over others. The customer speaks better when they speak from a credible place—no positioning…no advertising… just the story. Creating those customers takes domain expertise, and to create more than one customer like that is the job of leadership. Leadership teaches the organization to make certain choices and investments. Leadership sets the tone for how relationships inside-out and outside-in will be managed. And leadership ultimately determines which mentality—customer as advocate, as tool?—will thrive in their organizations.