Course Curated By: Dr. G. Danford (London Business School MBA, Helsinki School of Economics PhD)
Advice Before Starting
The only proven method for measuring learning is to take a pre-quiz and post-quiz of the content.
Content: Customer Acquisition
- The interaction between ‘conversion rate’ and ‘churn’
- The role of ‘relationships’ in product build
- The importance of ‘first-time interactions’
- The ‘Support Driven Development’ (SDD) model
- The ‘Four Horsemen’ which can impact customer support
- The three ‘Disciplines of Market Leaders’
- Why competition is not always ‘validation of success’
Growth is fairly simple. It’s the interaction between conversion rate and churn. The gap between those two things indicates how fast a startup is going to grow. Most people, especially business-type people, tend to look at this interaction in a very mathematical, calculated sort of way. Kevin talks about these things at a more human scale, because in a startup you’re interacting with your users, and you have a fairly intimate interaction in the early stages. Therefore, he thinks there’s a different way of looking at conversion/churn, in terms of how a startup builds out product. Many people forget that there’s almost no difference between an increase in conversion rate, and decrease in churn; because they have the exact same impact on growth. However, the latter is actually much easier and cheaper to achieve. A lot of times startups neglect this, until it’s far to late.
Kevin’s philosophy is that the best way to get to $1 billion of revenue is to focus on the values that help you get that first dollar, and to acquire that first user. If you get that right, everything else will take care of itself.
So when Kevin started Wufoo (online form builder), he considered how could he run the company differently. They weren’t interested in building software that people just wanted to use. They wanted a product that people wanted to love, that people wanted to have a relationship with, and they were actually very fanatical about how they approached this idea (in a science-y way). Love and unconditional feelings are difficult things to do, and in startups you have to do it at scale. So they decided to start off by asking, “How do relationships work in the real world, and how can we apply them to the way we run our business, and build our product?”
Dating vs. Marriage
A lot of the things that they uncovered about dating had to do with first impressions. There are similar conditions in companies. Human beings are relationship-manufacturing creatures. We cannot help but create, and anthropomorphize, the things we interact with over and over again.
First impressions are vital for the start of any relationship, because it’s the thing we tell over and over again. For most products in Internet software, first impressions are pretty obvious, and there are things you see a lot of companies pay attention to in terms of what they send their marketing people to work on.
Kevin’s argument for people who are very good at product is that they should discover many other moments and make them memorable: the first email a user ever gets from a company, what happens when the user first logs-in, the links, the advertisements, the very first time the user interacts with customer support, and many other important touch-points. All of those touch-points are opportunities to seduce the user.
First-time Interactions: Kevin Hale (3:30)
NOTE: this video will start and stop at the pre-assigned times 4:25-8:10
So how should we think about making first moments? Kevin actually took this concept from the Japanese. The Japanese actually have two words for how to describe things when you’re finished with them, in terms of saying, “is this a quality item?” The two words for quality are atarimae hinshitsu and miryokuteki hinshitsu. The first word means taken for granted quality, which basically means functionality. The other means enchanting quality.
Often times what people do is to create really beautiful marketing materials, but when they actually need documentation, they sort of skimp out on design features. This is something that happens over and over again. However, a company that got this right was MailChimp. What MailChimp did was they redesigned all of their help guides so that they looked like magazines covers, and overnight basically readership goes up on all these features, and customer support demands for issues that deal with how people optimize emails goes down.
When it comes to long-term relationships, or marriages, the only research Kevin recommends to read is the stuff done by John Gottman. Gottman has noticed that there are different types of behavior for relationships, and why people divorce. Gottman studied subsets of people who stayed together 10 to 15 years in a relationship, and all of a sudden divorced. None of the other indicators showed that this was going to happen.
What Gottman realized was that, “there was no passion, or fire between those people anymore.” When it came to their relationships, they kind of followed the second law of thermodynamics: In an enclosed energy system, things tend to run down, so you constantly have to be putting energy and effort back into it.
Kevin likes to think about this in terms of customer support in that, in the processing of a conversion funnel customer support is a thing that happens in between every one of the steps; the lack of support is the reason why people don’t make it further down the funnel; and that lack of support is the thing that prevents conversion from happening. This is primarily due to how everyone starts up their company or builds up their engineering teams. Because there’s a broken feedback loop there, and people are divorced from the consequences of their actions.
Support Driven Development: Kevin Hale (3:00)
NOTE: this video will start and stop at the pre-assigned times 16:45-19:42
What Kevin has been trying to figure out is; how to change software development in order to inject some values into the process which are not often talked about enough (responsibility, accountability, humility, and modesty). Kevin calls this SDD (Support Driven Development). SDD is super simple, all you have to do is make everyone do customer support. Jared Spool, at User Interface Engineering (one of the biggest players in the space) says that there’s a direct correlation to how much time we spend directly exposed to users, and how good our designs get. Companies often spend 30% of engineering time on internal tools to help with customer support. However, often times this is spent on ‘helping people help themselves’.
John Gottman calls this phenomenon the ‘Four Horsemen’.
- The first ‘Horseman’ is criticism. Criticism, in this context, is about people beginning to focus not just on the specific issue at hand, but on the over arching issues like “You never listen to users” or “You never think about us” all the time.
- The second ‘Horseman’ contempt, is when somebody begins to purposely insult another person.
- The third ‘Horseman’ is defensiveness. Defensiveness involves not trying to take accountability, or trying to make excuses for ones actions.
- The last ‘Horseman’ is stonewalling, or shutting down. Stonewalling, according to John Gottman, is one of the worst things we can do in a relationship. Stonewalling is something we see happening within startups all the time.
At Wufoo, Kevin constantly did experiments around support because they were so obsessed with it. For example, they added a drop-down of the pages for customers which asked “what’s your emotional state.” Their hypothesis was that nobody’s going to bother filling the form out. However, it turned out that this field was filled out 75.8% of the time. People were basically telling them, “For my technical support issue, how I feel about this problem is just as important as all the technical details you need to figure out in order to debug it”.
SDD: Kevin Hale (3:00)
NOTE: this video will start and stop at the pre-assigned times 30:14-32:51
Discipline of Market Leaders
Kevin recommends Michael Treacy’s and Fred Wiersema’s talks on the ‘discipline of market leaders’. They say there’s only three ways that you can achieve market dominance and depending on how you want to achieve that dominance, you have to organize your company in a very specific way. The three ways are:
- BEST PRICE: For best price, you focus on logistics.
- BEST PRODUCT: If you want to be the best product out there, you focus on R&D.
- BEST OVERALL SOLUTION: Best overall solution is about being customer intimate (it requires almost no money, a little bit of humility, and some manners).
According to Treacy and Wierseman; ‘Customer Intimate companies have an obsession with the core processes of solution development (helping the customer understand exactly what is needed), results management (ensuring the solution gets implemented properly), and relationship management’. These practices are implemented through;
- A business structure that delegates decision-making to employees who are close to the customer.
- Management systems that are geared towards creating results for carefully selected and nurtured clients.
- A culture that embraces specific rather than general solutions and thrives on deep and lasting client relationships.
NEXT Session 8/20: PRODUCT/MARKET FIT & SCALE
CONTENT: Case studies (DoorDash Teespring, and Twitch), testing your hypothesis, launching fast, user acquisition, public relations, The Golden Rule and more. LINK TO 8/20 BELOW