Customers… Forever or Fleeting?

Below is the ‘Tip of the Week’ from Ep94: What’s Wrong with Venture? Part 2 (Dave McClure)

Today Dave talked about sectors and trends that are hot and attract many investors. Even LPs are wooed by the new, sexy tech trends; which has influenced the thesis of VC fund managers. Dave has seen many cycles over the years and has structured his thesis around long-term, sustainable competitive advantages. And as I reviewed his comments, I saw a parallel at the business-model level. I considered my dealflow and the businesses that have staying power. Not at a sector or technology level, but in the way a business attracts and retains customers. And I asked myself, “”From this list of startups, which have long-term, sustainable value-creation? Are their customers a one-time event or a loyal customer for life?

I just received a deck yesterday form a company that has developed a SaaS platform for highschool athletes. They have great adotion, high engagement and seem to be providing strong value to their customers. But their business has distinct limitations. They do not want to serve pre-highschool athletes and there is no strategy to expand to college. They have a four-year window to serve their customers.

Another startup deck that I received a couple of weeks ago was from a company that has re-imagined the baby crib. They have a beautiful, free-trade, organic product that has had strong success selling direct-to-consumer on the internet. Cool product, great founding team, healthy traction. But again, this is a one-time sale, at a distinct point in time.

With each of these businesses, are they selling to a customer that will remain loyal in perpetuity? Is there an opportunity to build more value and sell more to that customer over decades to come? I think the answer is no, unless they re-imagine their customer…is the customer really the highschool athlete or is it the highschool? Is the customer the baby’s parent or is it the retailer that specializes in baby products? I’m not going to tell these founders how to run their business. It’s their business and their strategy. And this is just my own personal preference. As an investor, I like to see the opportunity for sustained, long-term customers. Is the business dependent on attracting mass numbers of new customers to make up for those that churned away? If one’s customers are a one-time event, customer acquisition must be a primary focus. And the company’s differentiation and staying power may be rooted in its ability to acquire customers.

But if the focus is on customer retention and delivering more value, the differentiation can be rooted in product. How do we better serve customers?… Not just, how do we better attract customers?

So, whether you are building a startup or investing in them, consider asking… Are your customers forever or fleeting?”

 

 
   

   

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Pete Maglio

The takeaways to end this episode are fantastic! Thanks @TheFullRatchet & @BenEinstein! pca.st/Fey4 #smartHardware #startups