Notes from Underground
Salvaging what's left of a business we're shutting down.
Darren and I are in the process of closing down one of our old businesses, a data-driven marketing agency. The TL;DR is the usual small business hazard: we couldn’t make money. I visited the agency blog yesterday on the Internet time machine, archive.org. I had to; our website is already offline. I wrote the blog posts maybe a decade ago. Revisiting them felt a bit like going through the personal notes and letters of someone who’s passed. (The notes and letters of someone I used to know is maybe closer to it; evidence suggests I’m still here.) The writing? Some of it wasn’t bad, some of it wasn’t good. As much as can be said, I find, for things in life that don’t quite work out but also don’t quite kill you. Reading the posts, I found myself more agreeing with this person I used to know than arguing with him. But mostly, I found myself just remembering him and the circumstances he lived in and tried to make sense of. I must be taking the mellower route to old age. I’m not fond of the guy, this past me, but I think I’m OK with him.
This post is going to be a list and summary of what I decided to keep among his posts and musings, along with my present day comments. I’ve selected heavily for relevance to small business life and success to keep things in line with my current concerns and the subject matter for this Substack. However, as it’s always possible I’m still here ten years from now, I also want to give that future me some notes to help him make sense of how he came into his own circumstances.
This is how I sometimes think of the inner life: a room we live in and leave, and a slightly different person moves in and takes stock of the things we’ve left behind. The new person cleans up, organizes the leftover things, keeping some and throwing away the rest, and then moves in his own new stuff until, eventually, the room feels like it’s his. But he keeps finding notes we’ve left even though we left a long time ago to go underground. And he can’t tell who lives there. And then it’s time for him to leave.
The Dancing Guy At Sasquatch!
At the 2009 Sasquatch! festival in Washington, a guy was doing his thing, dancing on a hilltop during the Santigold set. When the band starts playing Unstoppable, he encourages the people around him to join him. They pass. Unfazed, he breaks out the full range of his Elaine moves. He’s alone for a curiously long while. Until someone joins him, then someone else, and, soon after that, everyone else. The video had 3M views when I wrote the post. It has 24M views now. The top comment sums it up nicely: “I’ve seen this video dozens of times over the years. The lesson I learned is that you can go from crazy man to visionary in a matter of minutes. And all you need is commitment.”
My observations at the time on what contributed to his success:
He persisted: It takes time for people to consider you and what you have to offer. Then they have to decide if it’s worth the risk to try it out. “By persisting… he moved a bunch of other people’s sense of normal closer to his own.”
He stayed true to himself: I brought in the social network concept of high self-monitors (people who build large, strategic networks and ask themselves “Who does this situation want me to be and how can I be that person?”) and low self-monitors (people who prefer smaller networks and ask themselves “Who am I and how can I be me in this situation?”).1 “Low self-monitor often provide society’s evolutionary leaps. By persisting in their authenticity, by expressing novel possibilities of seeing, thinking, feeling, and behaving, low self-monitors open up possibilities for the rest of the world to consider. If the timing is right and the audience is right, a low self-monitor can move the prevailing sense of normal.”
He sold happiness: “If you’re in business and you can manage it, try to sell happiness. Don’t sell satisfaction, or quality, or value, or low prices. Sell happiness. Make customers smile lots. Sell happiness, and keep selling it, and make it easy for customers to get it.” That sounds about right but may be a species of Nice Work If You Can Get It. And if you get it, won’t you tell me how?
He found an advocate: Other videos of Dancing Guy on YouTube show him interacting with a guy in white shades earlier in the Santigold set. That guy leaves but then comes back at a critical point in the Unstoppable video. And he brings friends. It looks and feels like a tipping point. “Dancing Guy reached his tipping point with help from a repeat customer, someone who bought in to what he was doing, and enough to drum up support among his friends.”
The Two Words Most Used By Very Satisfied Customers
Our agency got work from for-profit, non-profit, and public sector clients. One such gig had us analyzing the customer survey results for a client with stores across Canada. The online survey included a text field for general comments and feedback. We used these text responses to determine the most common words used by very satisfied and very dissatisfied customers. The very dissatisfied customers were upset about a host of things, but the one underlying thing that triggered them? It was perceived disrespect. They used different words to express their anger, but disrespect was the core issue. I get this. Banging your head against corporate bureaucracy is one way to experience disrespect: the feeling of being unseen and not mattering. It’s a whole other level to be seen and personally singled out for disrespect. In small business, these are bright, bright lines to stay clear of.
The two words most used by very satisfied customers to describe our client’s staff were friendly and helpful. Friendly, I wrote, is more than just being cheerful or pleasant (though that helps). “Being friendly is showing kindness and concern for a specific person for the specific person’s sake (some thoughts on friendship).” And I wrote that helpful comes down to the ability to answer customer questions and to solve customer problems. Common sense stuff. But to put it into practice, day in, day out as part of company culture and DNA? Not common at all.
Some service businesses have roles that specialize in looking after the customer (customer service, account management, front of house) and other roles that do the technical work (fix cars, build websites, back of house). In small service businesses, these roles will often overlap. It’s a challenge for staff who do technical work to also be consistently “on” (friendly and helpful) when dealing with customers. You have to be on watch for that as a small business owner. Sure, you can train and monitor your staff; you’ll certainly want to keep reminding your team of your expectations when it comes to serving customers. But I think these qualities (friendly and helpful) are something you hire for. It’s just not possible to create them when they’re not there.
First Things First; Second Things Never
This piece was confused. I found the quote I used in the title in the footer of Russ Greiner’s site, under the heading “Thought of the Day” — the joke being the thought never changes. I think I got the essence of this time management quote right. Divide everything into two categories: important and not important. Spend all your time on the things you put in the important category.
But then I went wandering. How do you know what’s important and what’s not? Don’t you need to spend some time exploring first before deciding? And, when you’re exploring, won’t you inevitably end up exploring more second things than first things, because second things make up most of the consideration set? There are, by definition, far more unimportant things than important ones after all.
In small business, this handwringing is unnecessary. The important and first thing in small business is that the business operates at a profit and that the profits and the cash generated by the business grow. It’s the same first thing for every small business in every industry. Profit is the point. That’s the constant focus. Now, by the chaotic and not fully in your control nature of small business, it’s true that you, the owner, are going to need help focusing. That’s why it’s good to check the results regularly against the things you prioritize and set out to do. Anything you do should have a direct and positive influence on that first thing: profit. If it doesn’t, why are you doing it? The lovely thing is I’m not sure we asked this question of ourselves or we asked it enough while we were sputtering along with our agency.
The Loyalty Ladder: A Sideways Look
In relationship marketing, the loyalty ladder is a “concept that sees customers gradually moving up through relationship levels, starting at the bottom as prospects (those who have the intent to purchase but have not yet done so) and ending up at the top as advocates (intensely loyal brand champions).” Businesses move customers up the loyalty ladder by consistently providing great products and services and exceeding customer expectations.
I described two critiques of this conventional view of loyalty. The first came from Fred Reichheld. In his book The Loyalty Effect, he argues that customer loyalty isn’t always something a company can build. Loyalty leaders succeed, he said, because they target prospects who are more likely to be loyal in the first place. Loyalty leaders recognize three basic principles:
Some customers prefer stable, long-term relationships
Some customers are more profitable
Some customers will be more responsive to your particular business strengths
The marketer’s objective then is to find these likely to be loyal people and introduce them to their business; this, rather than wasting resources and frustrating employees by trying to “exceed expectations” for customers who have little chance of ever being loyal and profitable. I don’t remember if Reichheld delivered this with a trace of snobbery, but, hey, marketing is basically a matter of selecting and targeting “our kind of people” isn’t it? Outrageous! I don’t know if Reichheld’s first observation holds but that’s off of instinct. Most customers prefer stable, long-term relationships. No one has the time to speed date businesses. Do they?
The second critique is based on the disproportionate power of first impressions. I describe it like this: “The loyalty ladder doesn’t account for the very real fact that we often commit on the first visit. This first commitment is instinctive and emotional. It springs from our basic sense and appreciation of something done right. Customers don’t scrutinize the relationship every step of the way. They take leaps. What they’re doing in subsequent visits is continuing to relive and revisit an original experience they’ve already committed to, not finding reasons to commit at a later date.” I order the same bubble tea from each of the three bubble tea places I go to. And, in each case, it’s the same bubble tea I ordered when I first went. Is that weird?
I summed it up as the customers who’ll love you will love you on the first visit. Or they won’t love you on the first visit — when you’ve basically shown what you have to offer and can do for them — in which case they’ll never love you. “The best way to build loyalty down the road, then, is to focus on loyalty and commitment on the first visit. Taking a cue from the arts world, it’s always opening night: there are always new faces in the crowd who are experiencing your business for the first time. Make the first visit special and everything else (loyalty, advocacy, lifetime value) will likely follow.” I don’t think making the first visit special is equivalent to making every visit special. I really think businesses should try harder with first-timers. Recognizing them to start. Then following a different script maybe?
Using RFM To Identify Your Best Customers
RFM is short for recency, frequency, monetary analysis. It’s a useful customer segmentation technique for businesses that use a database to track customers and sales transactions. Each individual purchase a customer makes can then be linked to their record in the database. “The idea behind RFM is quite simple: 1) Recency: Customers who have purchased from you recently are more likely to buy from you again than customers who you haven’t seen for a while. 2) Frequency: Customers who buy from you more often are more likely to buy again than customers who buy infrequently. 3) Monetary: Customers who spend more are more likely to buy again than customers who spend less.” For each of the three dimensions, customers are sorted, grouped into equal sized bins, and assigned a score. The math works out so that the customers with the best RFM scores account for the majority of sales to the business. The 80-20 rule applies, but it does depend on the industry.
RFM also defines the order of importance of the three attributes in predicting customer behavior. Recency is the first and the most important of the three. The longer it takes a customer to return to your business, the less likely you are to retain them as a customer. Frequency measures the strength of the customer’s attachment. The more frequently she visits, the more your business has become part of her habits. Monetary is mostly captured by frequency, but it also helps find heavy spenders who may not visit that frequently.
There are fancier predictive techniques. But, if you’re a retailer with an in-house mailing list, and you have a limited budget for targeting mailouts, then a simple and effective way to increase campaign performance is to score your customers using RFM and then limit your mailing to the top tiers, where response rates will be highest. It works like a charm.
Positioning And The Principle Of Minimum Differentiation
The positioning concept was popularized by Al Ries and Jack Trout in their 1981 book Positioning: The Battle for Your Mind. It goes something like this: “In an over-communicated world, consumers screen and reject much of the information they’re being offered and they only accept whatever matches their prior knowledge or experience. Businesses have to adapt to this environment by oversimplifying their message and by concentrating on narrow targets, the consumer segments that are most likely to listen and respond to their marketing. By focusing, businesses can hope to find some unoccupied space in a target consumer’s set of perceptions and set up shop, if you will, at a safe distance from competitors. The key is to be distinctive. The distinction should be summed up in one word in a prospect’s mind, a word that the company owns. Volvo owns safety. FedEx owns overnight. Successful companies position themselves to be one thing to some people.”
The principle of minimum differentiation, meanwhile, is the tendency of businesses or products to cluster. The principle is also called Hotelling’s law. In terms of physical location, businesses want to be in the center of the markets they want to serve, making themselves a convenient choice for as many potential customers as possible. If they stray too far from the center, then they cede a larger share of the market to their rivals who set up closer to the center. Similarly, it’s rational for producers to make their products as alike as possible. If they introduce distinctive features that only appeal to a small subset of the customers in the market, they’ll position themselves too far from their competitors and, again, lose market share.
I didn’t get into it in the post, but small businesses are very unlikely to own a position in the minds of customers, except possibly in hyper local markets — the proverbial one bar town as an example. The best they can hope to do — and it’s very important that they do in fact try to do this — is to have as many potential customers as possible know who they are and know what they do. They don’t need to own a position in those customers’ minds; they just need to show up when the customers go to look.
Showing up would be a win but getting that win is itself is a challenge. Small businesses too often tend to be “me too” businesses: just another dog walker, personal trainer, restaurant, contractor, accounting firm, etc. They offer an undifferentiated or very minimally differentiated service. They try to get a small part of what they believe is a large market, effectively leaving a bucket out to catch the rain. I can’t fault the logic. As long as there’s enough rain, the bucket gets filled. But I can’t predict the weather either. Sometimes, when the water doesn’t fall from the sky, or you get tired of waiting, or you’re not satisfied with your “fair share” of water, you have to go looking for it. You have to compete. And when you decide to do that, you’ll start thinking about positioning and more-than-minimal differentiation.
Wrapping Up
A YouTube short shows a child, early elementary aged, taking a standing leap onto a high school running track. Behind him, athletes, in what looks like a relay race, are bearing down on him at top speed. We hear screams. It happens fast. The lead athlete tries to veer around the child who, having seen his predicament, also tries to dodge. But they both move in the same direction and contact sends the boy tumbling. The camera turns to follow the sprinter running to the finish line and victory. In his wake, we see adults hurriedly running onto the track. The child was reportedly OK. One of the buried comments reads: “I imagine everyone learned a valuable lesson that day.”
Going through the old site was nostalgic. We tried a lot of things with that company. We analyzed and created visualizations for public data sets in sports, health, and education. The education posts and writeups got traction; we received a ton of traffic (for us) over the years from, I imagine, students, educators, administrators, and parents across the province. We also had a lot of early interest in a Twitter analytics tool we built. But the complexity and cost of running it was too much for us to handle.
We never found our positioning with that agency. We were different but not in a good, clear, profit generating way. So we never found our first things. But we did have a few customers, and they stayed loyal for a long time. That allowed our small team to spend a great deal of time on marketing and advertising, custom software development, and management consulting and reporting. It was, despite the lack of profit, valuable experience. And it allowed us to keep going for more years than we rightly should have. Current us would have recognized it wasn’t working and would’ve stopped much sooner though. What the heck, current us would’ve been hard enough on the idea at the start to either have come out with a sharper version of it or drop it altogether. Yeah, the experience helped, but we learned our lesson, and it was valuable. I’m sure of it. And so end these notes.
Martin Kilduff and David Krackhadrt, in “Interpersonal Networks in Organizations,”