I was talking to my partner Dave this evening and we were discussing what it means to hold high standards. The best companies hold standards that are high but not too high.
He had an interesting way of assessing this this. Dave said when our contract comes up with a client, they should look around at the market and consider other companies, and then always come back and renew with us (Comcate). If we’re providing such unbelievable service that they don’t even check out the competition, then we’re probably doing too much. And if they look around and do leave, then we’re not doing enough.
In other words:
1. Look around and leave — underperforming
2. Don’t look around at all — overperforming
3. Look around and stay — optimized
Finding that optimized sweet spot — or the "lowest A possible," for all you students out there — is difficult but necessary.
So you disagree with the ‘creating passionate users’ view that you should offer such fantastic that not only do they not look around and stay, but they tell all of their friends / colleagues about you?
Ross, in my opinion Ben’s “matrix” does not mean that their customers are not passionate about Comcate’s services. As we are talking about corporate users rather than invididuals, the former tend to be more “levelheaded” when it comes to expressing their feelings towards their service providers.
Ben (or was it Dave 🙂 – your idea is good enough to be ratified as an ISO standard! 😉
Ross, it’s a good point. Seth Godin would also say, “Deliver something remarkable.” I’m not in the Creating Passionate Users / Godin camp all the way. I think you need to settle for “good enough” — but Alexander is right that it depends on the business you’re in and the kinds of customers you’re dealing with. A consumer service dictates different kind of selling behavior than enterprise software to large organizations.
I’m with Ross here. I don’t know if it’s about creating passionate users as much as it’s about creating habitual users: people so accustomed to the smooth service that your business provides that the contract is viewed as a regular business expense and not one that can be avoided or altered.
The “optimization” solution you describe could be read as: “Don’t crush your competitors; the cost of crushing is too high.”
There is a high cost to product switching in terms of downtime, learning curve, system/information migration, uncertainty, etc. This is especially true for enterprise software.
If customers take more than a cursory look around, it’s likely that switching costs have played a big role in the decision. That should be troubling for two reasons:
One, your product isn’t obviously superior. If that’s apparent to your existing customers, it will be (even more) apparent to your prospective customers. You’re probably not doing enough to win new customers, and you’re definitely not doing enough to steal your competitors’ existing customers (they face switching costs too).
Two, your moat is shallow, and open to attack. Your competitors may not be better now, but they could be a lot better tomorrow. Not only are you a tempting target, but trying to ride the “optimized” edge leaves you little cushion. Don’t court risk you can easily avoid.
I won’t deny that there is an optimization problem here. Every business has to balance marginal costs and marginal benefits. For every wise investment, there are thousands of product improvements where the marginal cost is high and the marginal benefit is trivial.
Still, I doubt the “optimized” solution you describe is optimal. Customer service is an area where there are often many improvements that have a low marginal cost but high marginal benefit. Indeed, being easy to work with, proactively anticipating problems, etc. often not only benefits your customers, but also increases your efficiency. “Going above and beyond” often produces unaccounted benefits.
Even in situations governed by diminishing marginal returns, many investments are still optimal (at least if you prefer net profit to marginal return). A good example is Starbucks’ descision to canabilize existing stores. The company does better as a whole even as its incremental return on investment falls.
There are also a number of situations where the marginal costs are high and apparently suboptimal, but where there’s a high return precisely because it seems suboptimal. Imagine Coke trying to optimize their advertising spend in the way your post describes! Or Intel investing “just enough” in capacity. Sometimes too large investments, too good products (new iPods canibalizing old?), and so on deter competitors. Precisely because you’re willing to defend your advantage at all costs, you won’t have to. If it’s costly to defend, it’s even costlier to attack.
In my opinion, Matt raised a good point. But one has to be clear whose point of view that “optimized” position represents.
E.g. mobile operators (at least here in the UK) are now offering more or less similar rates etc. However, a few years ago, every now and then every player would introduce an “overperforming” package (which they could not sustain economically) to attract new customers. The customers would indeed leave their current provider in hordes, but as soon as a better offer becomes available (and contract terms allow) they would switch again. A somewhat similar picture is also observed now with credit card companies who lure new customers with “0% on balance transfers for X months”.
So, in my view, as a company, one can make an offer that is outstanding (“overperforming”) from the customers point of view, but it could be loss-making from a business point of view. It took UK mobile operators over 10 years to reach the point when their offers are “optimized” and allow them to make a good profit.
To sum it up, in many cases for your product/service to be viewed as “optimized” by the outside world you have to “overperform” internally. It’s easy to go bust if you concentrate only delivering the “WOW!” factor to the consumers (for whom anything is never enough as they quickly get used to it).
Alexander is right that investments (such as in product, or in the case he described, product positioning) ultimately have to be profitable. Every decision will have to consider marginal costs and benefits. You can’t just “overperform.” You have to overperform in an optimized way.
What set me off was this description: “If we’re providing such unbelievable service that they don’t even check out the competition, then we’re probably doing too much.”
What’s absent from this description of “too much”? Marginal costs and marginal benefits. If the marginal cost of “too much” is trivial, it’s probably not “too much.” Even in the unlikely “always look around, NEVER switch” there’s a cost to the company measured in terms of risk and uncertainty. (You never know if never is never until the game’s over.)
I agree that there is an optimization problem here. It’s better to be good and ship early than perfect and ship really late. Perfect is only optimal when it comes to mathematical proofs. As Paul Graham notes, this is especially true for start-ups.
But what do you do when you’re already good? Then you aim for an optimized “better than good” (measured by marginal costs and benefits).
You’re always aiming for better, not perfect. But I wouldn’t complain if I aimed at better and hit perfect. Would you?
My suspicion is that, if you’re doing your job and crushing your competition, you’ll reach a point where your customers no longer feel the need to look around. That should be a milestone, not an indication that you’ve done too much.
I suspect Dave and Ben know this. Dave’s matrix applies along a good part of the development curve. But it doesn’t govern the whole curve. The “lowest A” or “good enough” is a moving target.