(As appeared in Forbes.)
Entrepreneurs are a passionate bunch. We see things that others don’t and go after building solutions. A decade ago, you could conceive of an idea that meets a market need and feel secure that you had a few years of cushion before others encroached on your space. Today entire industries can come and go in a few months.
There is an even greater responsibility in our 24-hour world for entrepreneurs to do continuous long-term planning. We cannot rest on the validation of our early victories without stopping to recalibrate. This kind of discipline can be difficult for the often ADD breed of entrepreneurs. For those that want to be serial entrepreneurs, or simply to have a second act of your current venture, be sure you develop the following disciplines.
Customers may come, but have you invested in them staying?
Sure, you can build it, and customers will come. But a more important question is: Will they stay? Many startups—flush with investor cash and anxious to move the needle—spend boatloads on customer acquisition and little to nothing on customer retention. Bain & Company tells us that just a 5% increase in customer retention can increase company profitability 75%. An even more startling Bain stat: 80% of companies believe they deliver a superior customer experience while only 8% of their customers think they do. The vacuum of high customer churn is a losing proposition.
Successful entrepreneurs pay attention to the wants and needs of customers, and they use their money to innovate to promote loyalty. Cloud Services provider Rackspace is very committed to this. The company achieved a famously low customer churn rate through a program of ‘Fanatical Support,’ which included the CEO devoting an hour a day to reading the most positive and negative customer feedback. The program led to an average customer retention of 56 months, which can be a lifetime in the hosting space. Make sure you continue to invest in current customers because it costs you far more to acquire new ones.
Are you investing on your next ‘best product’?
Even the killer app becomes obsolete, and it can happen faster than you think. Your flagship product is critical to building market share but you have to be realistic about how long its market life will be. If you’re painstakingly perfecting your core product—without pouring in to your next product—a competitor can swoop in and leapfrog you in the market.
Uber is looking at Lyft, Sidecar, and Flywheel in the rearview mirror as it has continued expanding offerings with different service levels (i.e., drivers with luxury sedans); an API that makes it easy for developers to tie Uber into other applications; and in some markets, food delivery (UberFRESH). Uber also formed a strategic partnership with Carnegie Mellon University to advance driverless vehicles. Whether you’re an Uber lover or hater, we’re talking about their continued focus on developing the next big thing. Your current big thing won’t be anything without your next big thing. And since this is a blog about capital and managing money, you can imagine that this kind of R&D does not come cheap. You must constantly be setting aside budget for innovation in new areas to ensure the future financial stability of your company.
Do you continue to invest in execution & vision?
Most people think ‘entrepreneur’ and ‘visionary’ go hand in hand, but you’d be surprised at the number of entrepreneurial firms that don’t have a product/service visionary. Plenty of companies come together because someone sees a market need and has access to capital. If you have a team of people executing without a visionary in the mix you may be building to solve yesterday’s problems with no roadmap for future growth.
This is critical for several reasons, not the least of which is the timing component to getting funding. People always advise you to ask for money when you don’t need it. If you have a product delivering steady revenue and one immediately poised to do the same, investors are usually willing to step forward. If you’re facing flagship product obsolescence and the window for delivering your next innovation is too far into the future, investors may not be as enthusiastic. The road is littered with companies that failed with their money in the middle without traction to get up the hill. A visionary thinks about this stuff, and can give investors the best sense of the timelines…and confidence in their projections.
Are you paying for someone to watch your back while your building?
Some entrepreneurs don’t realize how easily they can be negotiated out of their own company. This happened to Steve Jobs and Thomas Edison so you are certainly not immune to it. Another Forbes contributor, Cliff Oxford, has written about this, pointing to cases where minority-owner investors have brought in auditors on the pretense of a suspected financial or ethical wrongdoing. After lengthy investigations with high-priced lawyers and consultants everything is twisted into a complicated knot of legalese and supposed wrongdoing. Ultimately, the founder agrees to things he or she doesn’t really understand and boom—they find themselves voted out.
Remember, once you accept other people’s money, you are bringing in people with power and equity that can exceed yours. Keep a group of trusted people close and continue to upgrade the experience of your representation the bigger the stakes. The bigger the enterprise and the more investors in the mix, the more money you rightly need to spend to represent your interests.
Keeping banking on tomorrow
Vision and passion are the things that draw employees, customers and investors to an entrepreneur. But to keep an engaged group of stakeholders progressing and profiting, it takes a disciplined approach to the business plan and product road map. When developing your strategies and building your budgets be sure you’re investing in the tomorrow of your products and your markets.