Blake Borgeson, in blog form

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my comment on seth godin’s post “breakage”: be careful with your customers

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Seth Godin‘s blog doesn’t seem to allow comments, so here we are.

I really like the theme of his most recent post, “Breakage“: you have to be careful with your customers.  You might go years upping prices bit by bit, then all of a sudden lose half your customers before you know it.  Massive swings like that can happen whether making just a slight change to your pricing, or what you offer, or your tactics.  Here’s the last bit of the post: (although you should just read it–it’s short.)

When you hit the breaking point with one person, it might be 1,000 or 100,000 people who do the same thing at the same time. And you don’t get a second chance. They’re gone.

It’s not just money. It’s service. Or trust. Or spam.

You can stretch a rubber band for a long time. But then it breaks.

I heartily agree.  But he neglected to discuss what that company should be doing differently: it’s something so many businesses should be doing, and _especially_ businesses with a big customer base, since it’s so easy in the internet age.  Test.

Test new products internally, then with a limited set of your customers, before offering them to everyone.  Test advertising messaging, test landing pages, test changes to your checkout process if you’re in e-commerce.  And if you need to make pricing changes, absolutely test those changes before rolling them out to every customer.  Testing is the clear victor over focus groups, surveys, or any other method of gauging customer preferences without them actually making the decision in question.  If you ask them how a change in pricing would affect their decision, you won’t get the right answer.  If you serve 5% of your customers a different price, you’ll quickly know if it’s a good or terrible idea.

Maybe Seth’s insurance company, in fact, was merely testing pricing changes, and he happened to be in the 5% of their customers randomly selected to get the highest price increases, year after year.  If so, then Seth’s departure has just given them some very valuable information they can now apply to their pricing model for their customer base as a whole.  My gut tells me Seth’s right, though, and they’re just raising prices for everyone by the same amount, year after year.  If so, then as he suggests, they may have made an unexpectedly costly mistake.

p.s.: There are plenty of businesses where testing prices often doesn’t make a lot of sense, for a number of possible reasons.  At basecamp, for example, simple and consistent pricing is part of what makes them who they are.  I wouldn’t favor pricing experimentation for them.  For amazon, definitely yes.  For a new startup still looking to hit its product/market fit: don’t worry about testing tiny changes–iterate on your whole product.

Written by blakeweb

September 13, 2008 at 3:47 pm

Posted in marketing, startups

Tagged with , ,

umair to business: be sustainable

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Whenever Umair Haque, whom I’ve blogged about here before, saves up some thoughts and posts them and titles them a manifesto, people take notice these.  There’s Fred Wilson’s post from a couple days ago promising to really digest the suggestions; there’s Michael Lewkowitz, whom I didn’t know until today, and who sounds like a sharp vc up in Canada; there’s me, writing this post.  Hey, I count.

I didn’t plan on writing two posts about this, but there was so much to think about once I got into the topic that splitting up the two big questions Umair brings up seemed like the smart thing to do.

I’ll get right to the point.  Here’s another link to Umair’s post, if you’d like to read it first: A Manifesto for the Next Industrial Revolution.  The end of his post gets into suggestions for big sustainable opportunities to pursue, which goes beyond what I think I can talk about in a single post.  This post is about how an existing business can think about sustainability.

How can Businesses Make the World Better?

This question assumes, as Umair strongly believes, that economic progress doesn’t appear to be lining up with improving welfare and prosperity for everyone, as many of us have either hoped or assumed (or for cynics, doubted) it would.

The world is getting phenomenally richer – but the costs of that wealth seem to be endemic poverty for vast swathes of the world’s population, the poisoning of the water we drink, the pollution of the air we breathe, and the fraying of the social and cultural fabric that binds us together.

I agree with him regarding many aspects, (including allocating environmental costs), but regardless I don’t feel like you have to agree 100% with the above statement to appreciate a discussion of how to improve a system that could clearly stand some rethinking.

Restructure your Thinking around Sustainability

The first way to make the world better is a DNA (philosophy, mindset, fundamental strategy in Umair’s vocabulary) shift to sustainability–not just environmental, but people sustainability and market sustainability as well.  Umair says below that technology alone will not achieve a sustainable economy, and I’ll give him that, though as he admits, technological advancement will continue to play a critical role making the world better.  He just calls the DNA shift harder, and he may be right, since it’s a departure from the present course of most businesses.

Even if we invent a magic energy or food source tomorrow, it does the world little good if it’s in the hands of a Bill Gates 2.0 – the amount of new value that’s created is minimized. Conversely, it also does us little good if it’s in the hands of a Ford 2.0, who’ll just push-market next-generation gas guzzlers that put us squarely back into an energy trap.

The real problem is that the industrial economy is riddled with incentives to rip your head off, sell you lemons, maximize so-called “profit” at all costs, and exert power against you – not for you. That’s why it seems that pain, suffering, and value destruction are deeply embedded in the very DNA of our rusting, industrial-era economic system itself.

And that means that though technology is necessary, it’s not sufficient. What’s harder – and what truly unlocks new value – is new DNA. The fundamental question new DNA must answer is this: how do we organize and manage resources so they’re not depleted, crushed, strip-mined, and slashed-and-burned?

We need company and organizational DNA to get reinvented with a long-term view towards creating sustainable businesses and a sustainable world.  For a terrific perspective on that idea, Yvon Choinard’s book about starting and running one of the most sustainable companies out there (patagonia) really opens your eyes to what kind of a shift in mindset Umair is talking about.

Why be Sustainable?  Is it a Moral Imperative?

One reason to go the sustainable route is if you believe it’s a moral imperative–that it’s actually unethical for a business to operate knowingly in a way that is not sustainable, even if it’s legal.  However, as one of the commenters on Umair’s post points out, I think it’s going to be difficult for businesses to come together to agree with that until a new generation of business leaders, raised with all this talk of sustainability, takes hold.  That means you’re putting yourself at a competitive disadvantage by being sustainable, which means that, until the government steps in and regulates industries across the board, allocating environmental and social costs more effectively, sustainable companies are going to be on the down-and-out.

Should businesses sacrifice themselves for the ethical opinions of its leaders, even when not asked by the law? That’s a tough question for a private company.  As for public companies, in the US, leaders get taken to court for acting counter to the interests of shareholders.  To me, this means that the moral imperative is instead for both companies and individuals to push our government to reform the regulatory environment as quickly as possible, towards more effectively lining up with the realities of life on earth as we understand them now.

Long-term competitive advantage.

So how should business leaders, investors, and entrepreneurs see sustainability in our current business environment?  As a source of long term competitive advantage.  Work with politicians, if possible, to help them understand the costs and concerns associated with your business that aren’t accounted for in today’s regulatory environment.  Educate customers as to what needs fixing in your industry, what you’re doing about it, and how they can help, by voting at the ballot and with their purchasing decisions.

And think long-term.  Allocate costs correctly yourself in preparation for the day, hopefully not too long in coming, when the regulators force companies to do so.  Brag about it to your customers.  When you know where the business environment is headed, you can swim with the current instead of against it, and prepare yourself to be at an advantage when things settle out.

What does this have to do with most companies?

Loads of companies, especially in the internet space, can remain blissfully ignorant of greenhouse gases, global warming, and starving people elsewhere in the world with no consequences.  What should these companies and entrepreneurs make of all this talk about sustainability?

I think sustainability in the broader sense, beyond the environmental sustainability most people discuss, is about being honest about what you know–with yourself, your employees, and your customers.

Here are a few standard dishonest tactics:

  • manipulation (hiding important facts for your benefit)
  • bait and switch (say, introducing a new opt-out advertising mechanism without warning, like beacon into facebook)
  • push marketing a product that you know destroys wealth or value in the long run (umair’s ford 2.0 example, though I know too little about ford’s history to point a finger specifically at them)

If you wouldn’t be comfortable explaining to an audience of friends and family why you made the strategic decision you did, to me that’s not a sustainable strategy.  To agree with that, you have to believe that in the end, the truth will out, and that trust matters.  This broader view of sustainability loops back into my previous post about employing “be good” as part of your company strategy.

In my next post I’ll look at the second big question Umair discusses: How should we go about solving the world’s big problems?  I’ve been thinking about it a lot recently, so it should be interesting to try to put into words.

Please comment if you like.

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Written by blakeweb

June 25, 2008 at 5:17 pm

geoffrey moore at texchange last night: how to get into a new market in a downturn

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Geoffrey Moore, author of Crossing the Chasm, one of the most famous startup marketing books ever, spoke at Texchange Austin (AustinStartup blogged about it pre-event here) last night about selling to your first business customers as a startup with a new technology product.

His talk was great in my opinion, and was really insightful for me since my exposure to business sales strategy is fairly limited.  His advice ranged from the highest level ideas about your strategic approach to sales down to how to best look the person in the eye to tell if they’re really a qualified prospect.

The general theme was how to break into a b2b market in a downturn as a new startup.  Below I’ve recounted the overall flow as best I could remember–next time maybe I’ll remember to bring a small paper notepad to an event like this.

  • In good times, as a tech company you’re usually targeting the head of IT.  Usually you’re making a product for particular users in the company within a specific zone of the company, for instance you’re salesforce trying to break into supplying companies’ sales teams with saas crm.  IT in good times has maybe 15-25% of their budget to play with.  I can’t remember the term he used for that money.  But they’re basically supposed to use that to the best of their ability to make the company better equipped to be more productive and efficient.
    • In those times, you buy leads, and do any form of lead generation you can think of to dredge up lists of the IT heads who might be interested in buying your stuff.  A good indicator, for instance, is if they currently have a product of one of your competitors, and you think you have a strategic advantage for that organization.
    • Big established companies are extemely good at all this.
  • In bad times, the excess money in IT gets cut before almost anything.  So now, there’s no money left to spend on new tech.  You have to have some method for getting money taken from somewhere else.
    • Big companies aren’t as good at this–it takes a more manual, methodical, personalized approach for each potential customer.
    • You’re still hoping to provide something of value to a particular zone of the company, say sales, but now, in order to make the sale, you have to target someone with the power to reallocate budget.  That person is generally going to be a top-level executive, tasked with profit-loss responsibilities.  In other words, only someone who’s responsible only for the profits they generate, regardless of how they’re generated or where they spend their budget, is going to be able to reallocate in bad times to buy something new.
    • You can’t find these people using lead generation.
    • You have to directly target the company, learn about the executive, then get referred for a meeting.
      • You must have a direct connection to the person.  Find one.
      • Convince that direct connection that you’ve got a hunch that this company could greatly benefit from your product for these reasons, and tell them how grateful you’d be if they could recommend to the target that a meeting be set up to discuss the solution.
      • Your highest level person (founder/head of sales) has to be the one doing this.  They need to get this first meeting and go to the first meeting, otherwise there’s basically no way to get a meeting with the top executive you’re shooting for.
    • The goals of the first meeting:
      • Sell them on the fact that they have a serious problem; read what kind of person they are
        • conservative: clearly beyond a doubt you have to save them tons of money
        • pragmatic: give them the symptoms you believe they might have in their company of a serious problem your product solves
        • visionary: show how your product will set them apart and open up tremendous new opportunities to pursue
      • Qualify them by getting a completely convincing confirmation that, if you do a week-long study with their people to figure out their situation, then present a convincing proposal for your solution, they’ll follow through and go to the mat for you to make it happen.  If you’re not convinced, they’re not qualified.  Don’t waste your time. Follow your gut.
    • The research period and proposal delivery
      • Learn as much as you can about everything you could use about the company and how they’ll benefit from your product.  That will help you in this sale and in honing your product and pitch for later sales.  Get a green light to speak with basically anyone.  This is when you send in your salespeople and I think work with them as well on site, helping them learn the lay of the land for your target customer and see how to put together the proposal.
      • Drag out the delivery date as long as absolutely possible.  Send an outline when you finally send something, not the final proposal.  Keep them wanting the proposal until they really need it and are ready to sign that day, because if you send it before they’re ready, they’ll hold onto it, and that will quite possibly be the end, but you’ll kill yourself waiting to hear back.
    • Close with your top guy.
  • Once you’ve made a few good sales in this way, you have far more knowledge of your potential customers and their problems, and you have momentum to talk about, so you should be on the way to scaling up.  That’s about as far as the talk went.

Lots of great visual descriptions scattered throughout, like describing the barrier to entry in a new market as a membrane, with self-defense mechanisms built in to keep people exactly like you out until you’re a proven solution, made the talk entertaining and memorable.  If Geoffrey Moore is speaking at an event you can attend some time in the future, take advantage of it.

If you’re reading this and have a favorite book of all time on selling to businesses as a startup, please post a comment. Thanks!

Written by blakeweb

June 19, 2008 at 10:36 am

Posted in marketing, startups

Tagged with , , ,

most thorough short guide ever to marketing a web company

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Dave McClure is behind this. He knows what he’s talking about, it’s clear from how much he’s able to say with such a short and digestible presentation. Sure it’s simplifies a few things and takes some shortcuts, but you have to when you’re trying to organize something as big and fuzzy as the marketing strategy for an internet company into a 30-slide deck.

Written by blakeweb

April 23, 2008 at 5:13 pm

Posted in marketing, startups

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