“Your chances of building a giant company are much higher when you have a product that spreads by word-of-mouth.” – Sam Altman, Before You Grow
Last week, Sam Altman, President of the famed technology startup accelerator Y Combinator, opined on the importance of creating a product (or service) that customers love before spending your efforts on scaling and growing your business.
In his argument he stated, “focusing too heavily on growth before you’ve built something people love leads to the leaky bucket problem. You can get users [sic] to come in the door, but they don’t stay, and likely won’t return.”
Altman further added that, “If your product isn’t loved, you might get early users [sic], but growth will get hard later on. You’ll have to rely on inorganic means like ads, marketing, or PR to maintain your growth, and this gets very hard to sustain.”
To Sam Altman we say … Amen.
One of the biggest challenges facing any new business, or heck … even an existing business for that matter, is understanding the needs of the customer.One of the biggest challenges facing any business, is understanding the needs of the customer. Click To Tweet
Understanding these needs is essential to building a product or service that customers love and in turn, recommend to others (or even defend from other brand detractors on your behalf).
To put the importance of recommendations into some context, just consider a few of these statistics:
- According to a study done by the Word of Mouth Marketing Association (WOMMA), one word-of-mouth impression drives sales at least 5 times more than one paid impression (in some cases it’s as much as 100x more).
In other words, for every dollar you invest in listening and reacting to your customers needs, you’re essentially reducing your effective marketing spend by 80% or more.
- 20 – 50% of all purchasing decisions are driven by word-of-mouth recommendations according to research done by McKinsey & Company.
- Wharton School of Business found that the LTV (Lifetime Value) of a referred customer is 25% higher than that of other customers.
All combined, it’s pretty clear to see from the data that word-of-mouth recommendations are the key to building a highly-profitable and sustainable business (regardless of whether you’re an emerging startup or a Fortune 500 enterprise).
But, as Altman pointed out, recommendations won’t come if customers don’t first love your product themselves. In fact, it could have the opposite impact.
As we’ve mentioned in our post, The Anatomy of a Detractor, the average customer is twice as likely to share a negative experience as they are a positive one.
In order for someone to recommend your company to another, their experience needs to be exceptional. However, the opposite isn’t true. It doesn’t take much to trigger negative word-of-mouth. And, unfortunately, the people who are listening to that customer are 10x more likely to be drawn into their negative experience than their positive recommendation.
So, to add to the “leaky bucket” that Altman was referring to, you also need to consider that unmet customer needs within your product or service can also lead to an overall decline in growth through negative word-of-mouth and customer churn.
Growing Through Word-of-Mouth Recommendations
“The first step in solving any problem is recognizing there is one.” Will McAvoy – The Newsroom
Creating growth through brand advocacy requires an open mind. In spite of your domain expertise and what you may believe, if referrals aren’t driving your business today, you may not be meeting the needs of your customers. You need to be willing to listen and commit to making the changes required for your customer’s happiness.
This starts though conversation. And, conversation ultimately begins with NPS.
Using NPS Makes a Critical Difference
Altman’s article lead to a pretty significant discussion/debate on the news aggregator site, Hacker News. One of the commenters challenged the NPS methodology by stating, “Attributing verbatim feedback to NPS is misleading though. Getting feedback is just talking to customers … surveys and methods that have existed for years. Saying it’s part of the NPS methodology is giving it credit for something it did not invent.”
The commenter is absolutely correct in stating that customer feedback isn’t exclusive to NPS, but what he failed to recognize is that not all feedback is given equally.
There are in fact many ways to converse with your customers. You can ask any customer any question by any means available and (hopefully) get a response.
Alternatively, the NPS question and process was designed, tested and proven to deliberately elicit feedback that is specific to the growth of your business.
Quite frankly, traditional surveys generate such a low response rate that the results can often be meaningless. And, doing one-off calls and meetings with customers is just simply unscalable. In fact it often times exposes only a vocal minority which can be very deceiving.
Many people are quick to dismiss the NPS survey because of its perceived simplicity. But, make no mistake, what may just seem like a simple survey, is in fact a data-rich treasure trove of predictive customer intelligence. The kind of intelligence that makes it possible turn your product into one that your customers love and recommend.
It’s never too late (or too soon)
Although Altman was largely referring to early-stage startups in his post, his logic and reasoning apply to any business at any stage of growth.
Take for example, Hiveage, a Promoter.io client who recently shared their growth experience in a post titled, How We Track Net Promoter Score (NPS) to Foster Growth.
In the post, they acknowledged that even as a later-stage business experiencing growth, it’s easy to lose touch with customers and continue on assuming that your growth is a sign of customer love.
“Once you have built a product that the market has accepted and the business is growing, it is easy to fall out of touch with your customers. When your decisions during the early days start paying off, complacency can set in. Worse yet, you can start overdosing on your own hubris, attaching too much importance to your intuitive genius.”
To Hiveage, NPS was their “defense against complacency” as they described. Within just two days of launching their campaign, they were able to quickly identify the source of customer discontent and make a couple of clear-cut strategic product decisions which put them back on the right course.
Hiveage closed their post by stating, “Without NPS, we never would have known how Lite customers saw Hiveage and what effect it had on our brand.”
With the potential of up to 50% or more of your total revenue coming from word-of-mouth and personal recommendations, building and maintaining a brand that customers love should be the highest priority for every company.
At the end of Altman’s post, he added a note which stated, “Net Promoter Score can be a good way to measure user love too.”
And once again, we say … Amen.