The One Number To Predict Revenue (Part 3)

For me, the search for the magic number for marketing started with the presentations on Velvet Rope Marketing (VRM) that I started doing to CMOs a couple months ago. (As an aside, this is one place where the lockdown has proven very effective. I would probably have not travelled as much for the meetings in India, South East Asia, Middle East and Africa. But here I was, working from home, meeting CMOs and their teams all across diverse geographies. Over the past two months, I have done over 60 VRM presentations with Netcore customers and prospects.)

As I dug deeper into VRM and improved on my pitch with the feedback that I received, I realised I had developed a whole new vocabulary:

  • Power Laws in Marketing: a small percentage of customers account for a large chunk of revenues and an even greater share of the profits
  • Velvet Rope Marketing: to emphasise the focus on the Best Customers
  • Best-Rest-Test Customers: to segment their customers based on CLV (customer lifetime value)
  • Long Tail Marketing: to improve returns from Rest and Test customers
  • Best Customer Genome: the DNA of the Best Customers
  • Chief Profitability Officer: what the CMO and every CxO needed to become

Yet, there was something missing. I was unable to show how the improvements brought about my VRM could be quantified. While I spoke about an increase in profits, I realised that there were many contributors for profits and it would be hard for VRM to be recognised as the main component.

While CMOs liked the idea, I realised that I struggled to show how the VRM approach could be more effective than the marketing techniques they were using internally. I needed a number that could show a before-after impact of VRM. While CLV was good at an individual customer level, it did not help in capturing the overall impact across all customers. Perhaps, the trick lay in aggregating CLV across all of a company’s customers? I had to dig deeper.

Tomorrow: The One Number To Predict Revenue (Part 4)

The One Number To Predict Revenue (Part 2)

The one number that has attracted a lot of attention in the past few months is R0 – the reproduction number, which tracks how contagious an infectious disease is. If it is less than 1, it means that each existing infection causes less than one new infection and hence the disease will eventually die out. An R0 greater than 1 leads to an epidemic, as we have seen with the coronavirus.

Single number performance measures are all around us. A country’s economic performance is measured by GDP (gross domestic product) growth rate. A student’s performance is assessed by a rank or a grade. A company’s business performance is captured by its PAT (profit after taxes). A fund manager’s performance and pay could be tied to the alpha – the difference compared to a benchmark index. For high-growth software companies, an interesting metric is what is called the Rule of 40 which says that the company’s revenue growth rate and its profitability margin should be at least 40.

In all cases, a whole array of numbers is distilled down to a single number that can be tracked over time and compared with others. In this context, it is instructive to look back to the Harvard Business Review article in 2003 by Frederick Reichheld which sparked the Net Promoter Score (NPS) revolution.

It took me two years of research to figure that out, research that linked survey responses with actual customer behavior—purchasing patterns and referrals—and ultimately with company growth. The results were clear yet counterintuitive. It turned out that a single survey question can, in fact, serve as a useful predictor of growth. But that question isn’t about customer satisfaction or even loyalty—at least in so many words. Rather, it’s about customers’ willingness to recommend a product or service to someone else. In fact, in most of the industries that I studied, the percentage of customers who were enthusiastic enough to refer a friend or colleague—perhaps the strongest sign of customer loyalty—correlated directly with differences in growth rates among competitors.

… By substituting a single question for the complex black box of the typical customer satisfaction survey, companies can actually put consumer survey results to use and focus employees on the task of stimulating growth.

So, what can the equivalent of NPS be to give a forward-looking view on what customers will spend with the business? What is the one number that can predict future revenue?

Tomorrow: The One Number To Predict Revenue (Part 3)

The One Number To Predict Revenue (Part 1)

A year or so ago, a friend recommended “The Outsiders.” It is a book by William Thorndike about eight of the most successful CEOs as measured by the increase in their company’s per share price. As Thorndike explains: “The metric that the press usually focuses on is growth in revenues and profits. It’s the increase in a company’s per share value, however, not growth in sales or earnings or employees, that offers the ultimate barometer of a CEO’s greatness…In assessing performance, what matters isn’t the absolute rate of return but the return relative to peers and the market. You really only need to know three things to evaluate a CEO’s greatness: the compound annual return to shareholders during his or her tenure and the return over the same period for peer companies and for the broader market (usually measured by the S&P 500).”

I liked the fact that one could distil performance down to a single number. I was reminded of this recently when Fortune had an article recently about the success and popularity of the Net Promoter Score (NPS). Wrote Fortune: “All this devotion for a particular measure of customer sentiment? It may seem bizarre, but the phenomenon is real and growing. At least two-thirds of the Fortune 1000 use the Net Promoter Score, including most or all of the financial service companies, airlines, telecom companies, retailers, and others. Quietly, steadily, without anyone much noticing, NPS has moved into the C-suites of most big companies and the owners’ offices of thousands of small ones—extending its reach deeply and broadly through the global economy. Skeptics and enemies have largely been vanquished. It is now used in every developed economy and many emerging ones. It’s pored over in all types of organizations, not just businesses; in Britain, the National Health Service uses it. As organizations everywhere obsess over the customer experience, NPS’s advance across industries and countries is, if anything, accelerating.”

This set me thinking. Just like a CEO’s performance over time could be measured via the increase in the company’s per share value and consumer sentiment could be assessed via NPS, could something similar be done to predict revenue?

Tomorrow: The One Number To Predict Revenue (Part 2)

Exchange4Media Interaction

I had a 30-minute conversation with Annurag Batra of Exchange4Media discussing Velvet Rope Marketing, Proficorns and much more. Some of my quotes from a report published by Exchange4Media:

  • On Velvet Rope Marketing: In every business, there are certain customers who are disproportionately more valuable than the others. We need to take care of these customers very well. But before you do that, you need to identify these customers and see who is the largest contributor to your revenues. Then, it is about creating an experience that ensures that they don’t churn away. When the best customer goes, it’s a big loss for any business, B2C or B2B. It is about creating VRM experience to essentially make sure that they stay on. Then comes the long tail of customers. There are some among them who have great potential to be best customers. It is about identifying them early and reading signals from the data customers leave for brands. Then apply the same ideas by taking data from the attributes of the best consumers. Ensure that the acquisition of new customers is also optimized
  • On Proficorns: “Now there is a post-COVID world and consumer behaviour is going to change significantly. CEOs and CMOs in a world, where profits are under pressure, need to look at creating a new path to profitability. That is where I coined the word Proficorn. The mindset of a Proficorn is differnt fom a Unicorn. The definition for Proficorn is a company that is profitable, private and is promoter-funded not public so they have actually built the business with the profits of the business reinvested. In this scenario, there are three key differences in the mindset of a Proficorn and a Unicorn. The first is, at times, a lot of Unicorns tend to fire people. Whereas, Proficorns tend to hire because you got to go against the conventional wisdom. This is a great time to build businesses. If you have the capital to invest right now to make the right decisions on growing your team, you’ll come out very strong.”

I also spoke about Customer Lifetime Value (CLV), Best Customer Genome (BCG), the skill sets required to breakthrough in the VRM space and some of the tech trends going forward.

My Proficorn Way (Part 10)

Life’s Daily Clue

A habit that I have developed over the years is to wake up early. I like the quiet that the silence of the morning brings. It helps me reflect on the previous day’s meetings and ideas. This helps me think of the important takeaways and learnings which necessitate a change in my thinking. Doing this the next morning rather than the previous night helps set a distance that brings better perspective. And it is in these moments that I get the clues to unravel the mystery of what to do next.

It is like reading a good murder mystery. Even the best of detectives don’t get the solution right away (or else there would not have been a book!) It’s a slow process – one clue at a time, one question at a time, one answer at a time. A good writer’s detective will slowly solve the mystery – and the reader is there for the ride.

Daily life too provides us clues – one at a time. Big ideas may have their eureka moment, but there’s a lot of hard work and small ideas which go into the making of the big idea. It requires time. It needs the daily discipline of thinking deeply about meetings, conversations and readings that happened. It entails connecting the dots. It is a process of emergence – where the whole slowly starts becoming much more than the sum of the parts.

There will be many false starts along the way. There will be many paths which will lead to dead-ends. That is why perseverance matters. The search for a better way or a new idea runs through analysing the clues left behind in the micro-moments of the previous day.

It is therefore important for the entrepreneur to go through many different experiences – talking to different people, reading widely, taking time off to be alone, travelling to new places. Each creates a new clue – if one knows where to look. Each prints a new dot – to be joined with others. It is from these clues that new patterns start forming.

For me, the idea of Velvet Rope Marketing came slowly – starting when I first read Peter Fader’s book on Customer Centricity. I had picked up the book at Strand Book Shop in New York – on the last day of a US trip a year ago. And that happened because my Air India flight was delayed six hours. So, I decided to spend 3 of those hours at Strand – looking at every book in the “Marketing and Sales” section. Even after buying it, I did not immediately read it. It lay on my shelf for a few months. (I am a firm believer that every book comes with its “Will be read on” date!) And one day, I started reading. The ideas I had connected – the dots joined – the clues led me to the solution. A new venture was born.

Will be continued soon.

My Proficorn Way (Part 9)

Delegate to Grow

One of the biggest mistakes entrepreneurs make is trying to do it all themselves. This eventually stunts their growth. Delegating is perhaps the most important factor for scaling an enterprise. It determines the eventual success.

For me, delegating came easily. I have always been a big-picture person. I don’t like to get into too many details. I had to do that early on, but as soon as I can find someone else who can take a task over and do it well, I get out of the way. That is the only way to grow – because an entrepreneur’s life is always about solving new problems as they come.

Delegating requires trusting your team. It means hiring people who are better than you at something. You cannot babysit them for long. It means trusting them to do the right thing – without second-guessing them. It is not easy. For an entrepreneur, the venture is all that is there – and there are so many worries about things going wrong. Yet, a balance has to be found. Because without delegation, decisions will all get stuck and eventually, growth will stagnate.

I was forced into delegating in the early days of IndiaWorld. I had to be the external face – meeting customers, and later potential investors. I would also travel to learn – attending conferences outside India. So, I had to necessarily start trusting my team to do the right things – I could no longer clear every story published or review every headline. Once I realised that my time could get freed up, I took to delegating even more. People also liked the responsibility and trust that came with delegation.

To make delegation work, one has to accept that some mistakes will happen. One has to deal with those carefully. Be too lenient and complacency can creep in; be too harsh and before one realises it, every small decision will be pushed up a level. It is this fine-tuning that entrepreneurs have to get right.

I am one who likes uninterrupted time to think, read and write. I like to think ahead – imagine what the world will be, and what I can do. This deep thinking cannot happen with a steady stream of interrupts via phone calls and Whatsapp messages. Deciding what not to decide becomes equally important.

For 10 years between 2009 and 2018, I dabbled on the periphery of politics. Netcore grew nearly 50X during this period. Netcore had professional CEOs, and I let them run the business. I separated ownership from management. Even now, as I play a more active role at Netcore, I report to the CEO for the tasks that I am doing. Knowing that there are better people than me to run and grow Netcore is a great satisfaction – that I made the right choices. Proficorns are born from such decisions.

Tomorrow: My Proficorn Way (Part 10)

My Proficorn Way (Part 8)

Learning to Learn

Nothing that I learnt directly in the classrooms of IIT or Columbia University prepared me for my entrepreneurial ventures. My degrees were in Electrical Engineering. My first ventures were in software. What I learnt in every course over the five years of undergrad and grad education was how to learn. Every course was like opening a door to a new world. All it took was a few months of immersion to imbibe new topics.

When I began my Masters at Columbia University in 1988, I decided to take a course in the Computer Science department in Operating Systems (OS). A knowledge of programming and C was a prerequisite, and I knew neither. My advisor told me it would be impossible for me to do the OS course, given that I also had four other courses in that semester. I decided to go ahead – realising that I would probably have to spend a disproportionate time learning the basics of C. I had taught myself BASIC when I was in college and my father had bought a computer in his office in 1983. I figured another language couldn’t be that difficult.

I was wrong in the early days. My first test in OS resulted in me being the lowest in the class. I was advised to drop the course. But I decided to persist – confident in my ability to learn. And I did. All those years in IIT classrooms ‘learning to learn’ paid off. I spent a lot of time teaching myself C from a book and on a terminal. I finished the course second-highest in the class.

That was what gave me the confidence later in life – that I could learn any new topic in a few months. My entrepreneurial ventures have been in diverse areas – software, media, politics and marketing. In every venture, I have had to master new ideas in a few months. My advantage in each of these ventures is that I come to the problem as an outsider – with a new perspective. I am able to do “value-added aggregation” – combine the existing ideas in new ways to come up with something new and better. Lack of previous experience can actually be an advantage for entrepreneurs as they start their proficorn journey.

Tomorrow: My Proficorn Way (Part 9)

My Proficorn Way (Part 7)

Passion Wins

In the early days of a venture, the only asset the entrepreneur has is passion. The entrepreneur has a vision of tomorrow’s world, and this must be transmitted to others in meetings. “Infectious enthusiasm” is the entrepreneur’s greatest ally for getting the first employees and customers.

When I started IndiaWorld in late 1994 it was after a series of failed ventures over a two-and-a-half year period. At times, I doubted myself – would I ever be able to do anything right to succeed. But when I went out for meetings, I was a different person – high on my passion for what the Internet could. I had to make others see the way I saw the future. And it worked. I had no track record, no connections, and no mentors. But I had an inner drive – I had an idea of what the Internet could do, and I shared it with high energy in meetings. I knew that it was “do-or-die” and I had been through enough ‘deaths’ in the previous years!

The one thing that has always stayed with me through my entrepreneurial career is my passion. I have failed many times through this period. But I take up every new idea with a zealous fervour. Even now, as I have been working from home, I am making daily presentations over Zoom to CMOs on how Velvet Rope Marketing is the key to unlocking a new world of profitable growth. It is harder to show one’s passion over a video conference in a small window on someone else’s screen, but I use my voice and hand gestures to convey my enthusiasm.

In the early days of a venture, there is no product – just a dream. Passion will pull in people, who will chart the path to profits. The entrepreneur has to inspire through tough times that will inevitably be the norm in the startup period. People follow leaders, and for every leader, the starting point of the proficorn journey is passion.

Tomorrow: My Proficorn Way (Part 8)

My Proficorn Way (Part 6)

Explore and Experiment

I have seen many people and ventures fail because they were too rigid about sticking to the original business plan. This is not to say that the plans are not necessary – they are important to get one started on the journey. But after that, one has to continuously evolve. To date, I spend a few minutes every morning thinking about what I learnt in the previous day and what I need to change in our business approach.

I remember a meeting I had in 1997 with the CFO of a global tech company which was considering an investment in IndiaWorld or one of our competitors. Here is my recollection of how the conversation went:

CFO: I need to see financial projections for the next 5 years.

Me: I don’t have the projections. I can barely tell you what our numbers will be for the next year.

CFO: I need those projections before I can make an investment decision.

Me: Ok. Here is what I can do. Tell me the numbers you need to see in year 5, and I will fill out years 1 to 4.

CFO (shocked): What do you mean?

Me: It is such a fast-evolving world. There is no way I can tell you with any degree of certainty what the future numbers will look like. But what I can tell you is this – I run this business as if my life depends on it. I will make sure we succeed. I have stayed ahead of every competitor for the past 2 years. Whatever new ideas come, I will be the first to do them. This is a life-and-death business for me. But there is no way I can give you any believable projections for the next few years. No one can.

The meeting ended shortly thereafter. As expected, I did not get the investment while my competitor did. I had the last laugh when IndiaWorld was acquired for $115 million in November 1999!

My approach to running a business is to always be on the lookout for new ideas – how can I make it better daily. Some ideas will work, while some won’t. Unless I explore and experiment, I will never know. In IndiaWorld, we launched 13 portals – 4 succeeded, 9 did not. I would never have known which ones would have worked unless I was willing to try. That’s how proficorns get created.

Tomorrow: My Proficorn Way (Part 7)

Why China Can Kill and India Cannot (Part 4)

India cannot take on China – not until its economic might – and therefore military strength – increases. It will take a generation or more of rapid and sustained economic growth. Till then, just as we are now learning to live with the virus, we will need to live with the bully. No one in the world is going to come to help us. The US can yell and scream at China for the virus but look at its actions. See this headline from a few days ago in the Wall Street Journal:

The June 14 story goes on: “China has retaken its mantle as America’s largest trading partner, emerging as a rare bright spot for U.S. farmers and other exporters as the coronavirus pandemic constrains global commerce. Trade between the two nations rose to $39.7 billion in April, up nearly 43% from the month before, and enough to once again surpass Mexico and Canada. The jump followed the signing of a trade pact in January in which China agreed to sharply step up purchases of U.S. farm products and other goods.”

This US will come to help us? The joke’s on us.

What India needs to do is to start fighting back with a different playbook. We need to start strengthening our economy with bold measures – actions no Indian political leader has ever taken even though everyone of them had the same authoritarian streak that China’s leaders have had.

  1. Create War Cabinets because the neta-babu jugalbandi cannot see us through the triple guns, germs and steel crises that we face – borders hurt by China, bodies hurt by Covid, and bank balances hurt by Cashlessness.
  2. Launch Mission 10-20-30 to replace 10 crore Chinese workers with 10 crore Indian workers in 20 months with each job having a monthly minimum income of Rs 30,000 or more, Let’s hit them where it really hurts.
  3. Show immediate intent of seriousness to transform by liquidating Lutyens Delhi

Every Indian political leader has failed the people of India. While we see what China is doing to our soldiers, we don’t see what the damage that the domestic policies of our own leaders are doing to us. Let’s open our eyes and demand the change. We have had enough of the failed policies of the past. What India needs is a disruptive political entrepreneur who can transform India. (Narendra Modi promised that during the 2013-14 election campaign. That’s what got him the support from many of us – me included.)

China is the villain outside our borders. What about the real villains within our borders? Will we demand the real political and economic changes that India needs to truly take on China? Because our children will one day ask us, “Mummy, Papa, you saw all that was happening. Why didn’t you do something about it?” What will we answer them?