Can churn be good?

Churn is inherently a bad thing for any startup. You don’t want to lose customers or revenue. At least not in the 99% of the cases.

But churn can also be spun into a good thing.

Churn is an opportunity for you to learn, what you can improve and do better. Because by churning, customers are essentially telling you that you’re not bringing enough value to them.

Hence churn is an opportunity for you to think about how you can deliver more value going forward. And start doing so. But you of course first need to understand why they churn – really understand it:

If they have chosen a competitor, figure out why? Is it a matter of features? Flow? Price? Or something completely different?

Should the churn make you reconsider your roadmap priorities? Or how you market and sell your product so expectations are better aligned, and you get better at understanding who the right and best customers are for you?

Etc.

There are plenty of opportunities to learn from churn, and you should. Unless churn happens because a customer goes bankrupt, each churning customer is an opportunity to understand the market, the customers and your value proposition to them better.

So take the time. Don’t neglect churn or accept it by relentlessly focusing on growth in new customers to compensate for the customers, who leave. First of all, it will be an issue when growth becomes harder to sustain. And second, and most importantly, you miss out on an opportunity to do better going forward. And reduce future churn.

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Silent opportunities

Preventing something from happening is without any doubt one of the biggest opportunities in healthcare – and perhaps especially digital healthcare. Trying to keep people from developing a medical condition that requires cost medical care is a really good idea for everybody concerned. And given the nature of prevention – and thus lack of physical intervention on the body – it is an area that is really suited for everything digital.

But there is an opportunity that might be even bigger; helping look after those who have developed a condition to enable them to have an improved quality of life. I think there are at least two major arguments for why this is so:

One of the problems with being diagnosed with a condition that may last for life is what happens after the diagnosis has been given. It’s all very good that in Denmark there is a 30 day or so guarantee to get a diagnosis, but to many who are then diagnosed, getting the message might actually be the last time they have a truly meaningful conversation with someone who specializes in their condition.

Yes, it can be that hard to get the attention and follow-up, you would like to have, post-diagnosis. There may be a lot of reasons for why this is so, but I think two of them are a lack of specialists in general combined with a lot of conditions being considered relatively banal by any other than those who are actually suffering from them.

In those terms this is what I would call a silent opportunity.

Here digital tools for follow-up and disease management can be a real benefit, as they can supply the kind of ongoing help and advice that is otherwise inaccessible. Done right digital tools have an opportunity to take the place of a specialist and provide the person with the condition with all the tools needed to ensure a better quality of life.

In this also lies the second major argument for why I believe this is a huge opportunity: The value the tools can potentially bring to the patient.

If a digital tool provides significant value to a person with a condition – perhaps for life – I can’t think of any reason why it wouldn’t be a major business opportunity to strike a working relationship between provider and patient perhaps even for life. If the tool becomes an important port of ensuring the users quality of life, it is worth paying something for. Likely not a whole lot per month, but over time it all adds up. And, best case, with extremely little churn.

For startups looking to cater to this market it is an opportunity to build a really interesting business for the long run with a solid purpose to boot. Of course the requirement beyond being able to build something that truly adds value is that entrepreneurs are in it for the long run, as exit opportunities may be few and far between. But for the right people with the right incentives and motivation to make a difference, the opportunities are definitely there.

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Unleashing impact

A couple of weeks ago I ventured a bit into unknown territory, when I attended the Green Impact Summit in Copenhagen. I wanted to get a firsthand view of what’s going on within the world of impact startups and get a sense of how it’s progressing from being a lot of great and interesting ideas into real companies that actually have a fighting chance both to create impact but also become great businesses.

I don’t know what I expected before getting there. But a couple of things surprised me.

First of all the sparse attendance at the event. There probably was a couple of hundred people in total, and many of them were from the startups themselves or from the supporting ecosystem. For all the hype surrounding the space it still seems like we have some distance to go, before it really draws the big crowds.

Second, I noticed that the creativity and skill in the solutions being showcased are not necessarily matched with business experience yet. It still seems like there is an abundance of idealism – which is fine – and not so much emphasis on actually making it a sustainable – viable – business.

Tommy Ahlers, the super angel (yes, I will call him that) said it well, when he noted that the impact investment community reminds him a lot of where the tech investment community was 20 years ago; a lot of great ideas, visionaries and willingness to share. But not at all the same kind of focus on the business side of things.

I fully realize that there may be some out there who would now suggest that thats all part of the plan. That the great and all important cause of fighting climate change in all its incarnations takes priority ahead of talking about business. But I think that is totally misguided; there is no distinction between impact startups coming up with brilliant solutions to our sustainability challenges and the ability to make a profit. Rather, I think they go very well hand in hand.

There is an obvious opportunity in this space IMHO for experienced business savvy people with an interest in pursuing something more meaningful than a corporate career to look at startups in this space and look for ways to collaborate and even engage directly in one of them, helping them succeed all the way.

In fact, I don’t think you can overestimate the potential of this sector to become a real Danish or Nordic growth industry, if we just show the ambition on wanting to make it about more than the idea and invention itself but actually put a laserlike focus on what it means and takes to succeed. In a big way.

It’s ‘just’ a matter of the missing people engaging directly with everything they have in the good cause.

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The new reality

Currently it’s not for the fainhearted to follow the developments on the worlds stock exchanges. 15 years of bull market has been replaced by an ugly bear which seems to send anything with an incling of tech down, down, DOWN in the market. Well, it pretty much sends everything down to an extend where it can resemble a stock massacre. 

The development in stock quotes is not interesting in itself – things go up, and they come down again. What’s interesting is the shift to a new reality that the movements are an indicator for; the end of ‘free’ money, rising inflation, rising costs of production and a shortage of both key components and talent. It is truly challenging times. 

In the face of such adversity, you can be forgiven for giving up and just wanting to bury your head in the sand until this whole things blow over. Because how do you cope, let alone adapt to this new reality? Most of us have never tried anything like it, so we’re in uncharted waters trying to learn how to swim before we drown.

But it’s exactly when you have to develop a key ability in an instant that you’re perhaps the most capable of doing so. There is just no workaround. So when the immediate shock gives way, it’s time to assess where you are, and what all this means for you and your startup and start adapting to the new normal. And I think there are a couple of things, you need to address and get used to.

First of all, you need to control your burn and your business fundamentals. The good times where it was growth at all costs, and nobody cared about the cost are over, as far as I see it. Going forward there will be much more scrutiny on your commercial model, and whether its viable or not. If it is and you can prove it to investors, you will still be able to attract funding to grow and seize opportunities (more on that in a bit) that may present itself. Furthermore you avoid getting into a situation where you need to raise new funding with your back against the wall. That’s a bad situation to be in in general – now it’s just plain terrible for you. So don’t go there. 

Second, be aware that a lot of the ‘smart’ growth tactics you have deployed in the past and probably semi-automated probably won’t have anything near the same effect anymore. Your customers don’t have the same spending power or urge to spend, as they had before, and you will most likely see cutbacks towards skipping things that are considered non-essential. And let’s be honest; a lot of what’s available out there are non-essentials that few customers would truly miss, if they had to cut it. 

With that there is also an opportunity. An opportunity to put your automated growth machine on the back burner and instead spend some time and energy on talking to customers face-to-face, listen and really understand where they are at, what they truly need and how your product applies to those things. You wan’t to ensure that you truly understand how your product is truly – and please don’t blow smoke in your own eyes here – essential for them, so you’re still considered valuable and thus they will continue using and paying for your product. 

Willingness to pay is going to be the only metric that matters here. Forget about most other metrics right now. If you can’t get your customers to pony up the cash for what you provide and have them continue doing so, you have a serious challenge. It’s that simple. 

The benefit of this simplicity is that once you get this right, you will know that you have the strongest possible foundation that will pretty much insulate you and your startup from market turmoil. You will know for a fact that what you do and deliver is essential to your customers, and that any future downturn will hurt a lot of others before it hurts you. 

Knowing that is priceless. It allows you to get a bit out of the crisis “all hands on deck”-mode and start thinking about the future and pursue interesting opportunities. What do I mean by that? Could be that one of your competitors don’t have the same stamina that you do and suddenly provides an opportunity to consolidate. Consider it. If it makes sense, and you can get the financing right, consider doing it. Exploit the crisis of others for your own benefit. 

Do whatever it takes. And understand down to your very core that this is a new reality we’re looking and have to operate in.  

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Join the club

If you’re looking for a great business model, look no further than to the subscription model. The idea of having a customer pay for your product or service on a recurring basis over and over again for all eternity is mouthwatering. Of course customers seldom stick around for that long, but I am sure you get my point; the subscription business model is where you want to land in terms of both profitability, predictability and viability.

But the subscription business model also has its huge risks. And the primary one at that is the obvious risk that some day your customer will wake up and for whatever reason decide that she doesn’t want your product anymore – and then she cancels her subscription and leave. Gone is the ongoing revenue, the nice profit margins, the predictability of your business growth and the viability of your business model. You’re left with wondering what went wrong, a challenge to replace the customer with a new one – and cost you won’t get covered in the short term.

Nevertheless the subscription model works. It has mechanics that works like clockwork; smaller customers love the ability to stay on one month at a time and have the flexibility to say yes and no, when they need to access your product. Bigger customers love the ability to sign longer term deals, so they don’t have to spend time on handling the expense every thirty days. There are winning scenarios for all.

The question thus becomes if there is another way of looking at the subscription model from another angle than one of pure financial mechanics and convenience? Potentially one that lets you work with the model in the context of your startup and enable you to build an offering around your subscription model that will add rocket fuel to the value of the offering, while significantly reducing the risk of customer churn?

It can be little surprise that I think there is. And basically it has to do with framing the model in a slightly different context; moving it from a pure business model to a strategy about creating a sense of belonging with customers.

If you want you could call it a club. I have always been fascinated with clubs and their ability to get people from different walks of life together in supporting the same cause or team. I am especially fascinated when that sense of belonging to and supporting something endures during times of hardship. Times where you might have every reason to walk away, but you decide to stay because you are addament or perhaps just hopeful that better times and success are just around the corner.

Those dynamics have power and real merit, and I think it could make sense to try and work on transforming those into a startup context; i.e. how can you create your own ‘club’ and a sense of belonging with customers, where they will stay with you almost no matter what because what you’re delivering to them is above and beyond the product or service as it is right now.

In order to become a club, you need to define a mission and a sense of purpose that customers will want to buy into. While I realize that most startups – and other companies for that matter – have vision and mission statements ad nauseam, this is different.

This is no afterthought. This is absolutely core. This is what you and your customers need to believe can become true at some point in time that is not too distant out in the future. Where do you plan to take your customer? What’s the promise, you deliver to them? How does ‘the promised land’ look and feel once you get there? Is the attraction, benefits and value of it enough so that customers will buy into it, because they can already sense it now?

Next up you need to figure out what the perks of belonging to this club are, as you embark on your journey together. Just as with any other form of endeavor, you cannot succeed without gas on the engine, so what is your gas? How are you going to keep the engine running and provide your customers something that is more than enough to keep them engaged and believing in the ultimate destination? And, importantly, what is the cost of keeping them happy along the way? Is it at all tenable, and if not what can you do to ensure it becomes so?

It is about creating fans of what you do. Kevin Kelly described the 1000 true fans theory years ago that basically says that if you can find 1000 true fans, who will buy whatever it is, you produce, you’re set. At least as an indenpendent provider. But there is no reason why that shouldn’t be scalable to a startup scenario; consistently building a following that is passionate enough about the quest you’re on that they will be buying into everything you do the path towards the end goal.

When you manage to do that you not only delight fans and retain them for the onward journey. You also have the potential to look into decreasing price sensitivity, aka you can start working with your pricing. Fans are not necessarily that picky – they will support you a long, long way before they start being concerned – and most of them will (at least if you operate in the B2B space) be deploying other peoples money. For them the price concern will be even less important – provided of course that you stay the course and stay loyal to what keeps you together.

That in turn will enable you to get to predictable growth. You will start being able to pretty accurately model the potential of adding new things to the mix and as a part of that also figure out when the timing is right to adjust the price in return for added benefits from the ‘club’ membership. I am not suggesting it becomes easier as such, as these things are still very complex to get right. But I am suggesting that it should be much more fun, since you have got the mechanics of the model working on your behalf.

So with all the above things being said, what do you need to create a ‘club’ feeling around your product or services and give customers the sense of belonging and wanting to belong to your cause? The answer, of course, is the right mix of talent and the financial means to get there.

To address the finances first, I am pretty bullish that if you can come up with a model where you can show investors the predictability, reliability and viability of your model from a financial perspective, they will be keen to support it. Investors are always looking for growth opportunities, and if those come in tandem with manageable risk at an acceptable level, it starts getting interesting for them. So that will most likely not be the biggest challenge.

The bigger challenge is likely going to be to find and attract the talent that will make the model work for you. Because it takes some special skills both within storytelling but especially within customer success and support. Furthermore it also takes a mindset that gives above and beyond the short term optimization one. If you are looking to making this model work and base your startups growth and future success on it, you need to be clear with both the team and your investors that you’re in it for the long term.

That’s what it takes to create a real movement that is above normal considerations for retention and will deliver the predictable growth and bottom line year after year; a club people will feel passionate about.

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Amplification beats disruption

Disrupting markets have for years been a formula for success for startups. Be nimbler, nicer looking and cheaper than the incumbents in your market, grow at a blistering pace whatever the costs associated with it and you will be on to doing great things taking your idea from it’s inception into potentially a unicorn scale-up.

While these startups have been blasting the competition to the roadside, there are a couple of things, we haven’t really discussed. One is the obvious fact that the expansion has only been possible due to a presence of excessive funding, sometimes with very little prospects for developing a viable business model going forward (Uber comes to mind as the poster example of this). The other is the more important one; that in the quest for disruption, more value has been destroyed than has been accrued by the startup.

Of course there is no rule anywhere in the capitalist world that suggests that challengers should be mindful of not destroying more than they create, and you could also very well argue that for customers that are left with a better service at a cheaper price, it’s a pure win. But in terms of the prospects of economic growth on the longer term, I would still suggest that the business of disrupting things just for the sake of disrupting it runs counter to what should be our common interests.

The challenge with disruption is that in the absence of real innovation, disruption doesn’t create anything. To put it in other terms the size of the pie stays the same, as there is no real growth anywhere. Now, you could argue that customers being able to get more for less increases the overall economic activity and make the individual better off, because he gets access to more, but we need to ask ourselves whether we really do think that improving our economic prospects by going cheap is really sustainable?

Just ask the American middle class. Think about how much of their economic growth is really down to the availability of ever more cheap products and services – aka crap IMHO – than, say, an ongoing positive development in their disposable income? It’s a lot more of the former than the latter, and it’s actually quite a systemic problem that we have done preciously little to try and fix but will need to fix sooner rather than later. If not for anything else then for ensuring social stability in society.

It might be a small detour to take, but in essence my point is this: The things we celebrate as being innovations and creating value are really the opposite. A lot of it is piggy backing on extracting value that already exists other places while creating nothing meaningful new, and the end result is that while it undoubtedly leaves a few better off, it leaves more worse off. That’s not a winning recipe long term. It is a race to a bottom, you don’t want to reach.

So the question then really becomes how we might work to change this dynamic? How do we get from celebrating the gold calf into innovating in a way that is not only positive in itself but net positive for economic growth and with that society itself?

We need to get back on the track where innovation is about creating breakthroughs that unlock new kinds of value instead of sucking existing markets dry. We need to come up with technologies that create new markets that can in essence function as amplifiers of new markets.

For startups this means that instead of looking to disrupt someone already there and try to get their slice of the cake, the focus should be on how to ensure that the cake itself gets bigger, and whatever is added to said cake the startup in question will be well positioned to grab its significant share off.

Doing that will surely require a vision above and beyond 99,99 % of all vision statements ever presented by startups or corporates. But think about the opportunity? Think about being the innovators edition of Christopher Columbus setting sail to find something that no-one has found before only to end up with far more than what you were able to imagine, you would ever find?

We need that kind of imagination to replace the fighting for scraps in areas we already know really well. We need this to get a situation, where innovation is a net positive of a more significant nature than used as a cover up for ideas that could in essence very well be net negatives for all.

I’ll be curious to see who sets the standard first, and what kind of vision could emerge from this.

(Photo by Daniel Chekalov on Unsplash)

The new WFH opportunity

What will the Work-from-home (WFH) movement mean for local economic growth prospects? And for startups looking to facilitate this new way of basically organizing the economy?

Futurist Thomas Frey has an interesting take, in which he basically says that while flexibility for people and corporations will be at an all time high, the demands on investment in infrastructure is going to be gigantic.

Of course he is referring to the investments in bandwidth, support infrastructure (incl. education) etc., but my bet is that the investment opportunity in more soft components of these emerging ecosystems is going to be just as massive.

Many will doubtless see the WFH future as the domain of the big tech companies. But I think there are countless opportunities for startups to come in, seize opportunities to make this new reality ‘gel’ better and build some very substantial businesses from it.

I especielly think this is going to hold true as the big corporations by default probably are the least suited towards figuring out what a new flexible workday outside the corporate controlled office should look and feel like. Here the more nimble, creative players should have a very good chance of carving something out (before they are eventually acquired by the big players, of course).

We may indeed be on the brink of a golden age for digital tools and services supporting a remote economy. The question is who are going to go after it, and what kind of products and services will end up winning in this space.

Personally, I can’t wait to find out.

(Photo by Jason Strull on Unsplash)

Free your talents

What’s the point in spending a lot of time and effort in getting the best people to join your team, if you’re not prepared to let their talents loose for the good of the company?

It sounds like a stupid question, but in reality it happens all the time; great people are onboarded with promises of exciting challenges and an opportunity to make an impact. And a few months later they leave again, disgruntled, hopes dashed and with a really poor experience of you and your company.

Except in cases of a bad hire, it is rarely the departing team members fault that things didn’t go according to plan. It’s mainly on you for not ensuring that they were provided with the guidance, tools and mandate to do what they were hired to do.

Often this comes down to the fear of losing control as a founder. After all, you and your co-founders built the company to where it is today, and it would be a real disaster for anyone to come and mess that up. It’s super understandable, and I get it. But you can’t think like that if you want your company to continue on its growth trajectory.

Instead you need to realize that you have limits. That there are other and better people out there at doing what needs to get done to get to the next level. And that your task is to persuade them to join your company instead of the competition. And then – basically – get out of their way. Within reason of course.

Personally, I have always found that you generate the best results when you’re brave enough to be ambitious in your recruitment and go for people that are better and smarter than yourself and then do your utmost to provide them with the freedom to operate. Why? Because when they deliver according to expectations – or maybe well beyond that – you and your company deliver as well.

So please, free your talents. Or they will move on to somewhere else, where they can.

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