Velvet Rope Marketing (Part 2)

Velvet Rope Marketing (VRM) is much more than a loyalty program. In a loyalty program, anyone can sign-up and collect points. In a VRM program, it is the brand that decides which customers are eligible for the differentiated experience. Many companies have a loyalty program, but very few do VRM. By missing out on deepening relationships with their best customers, they are losing out on opportunities to increase their profits – because Best Customers can be many times more valuable than the median customers.

So, what can companies do for their Best Customers? Here are a few examples:

  • eCommerce: Give 3 free exchange opportunities to best customers; Design a special page based on customer preferences – combination of things they like, new season/ launches, offers
  • OTT: Ask best customers for preferences to recommend for the following week; Give early access or preview (music, tv shows, movies etc.)
  • Retailer: With data on items that the best customer searched for but weren’t available at the time, retail stores can give them the first chance to buy those or similar items when in stock; give offers for items similar to customer’s previous purchases
  • Multiplex: Predict what best customers are likely to order and place in the cart/ offer an easy buy option
  • Manufacturer: Give privileged opportunity to buy a new collection from company/brand or even design new products

Another way to think is along the three dimensions of Exclusivity, Envy and Access – as outlined in the book “The Velvet Rope Economy”.  Here are some more examples of differentiated service examples:


  • Get premium samples free – from wishlist and new launches
  • Get a special page designed based on preferences – likes, new season, offers
  • Get notifications on topics of interest
  • Participate in product co-development
  • Cancel tickets or orders without loss


  • Pre-book a slot based on visit patterns, etc; get an assigned concierge
  • Get free exchange opportunities
  • Pick their own seats in advance (flight, theatre etc.)
  • Order service/product before arriving on-premise
  • Preferential treatment from customer service; first-in-line always


  • Get invited to media events celebrating the brand’s loyal customers, to get first-look at products
  • First opportunity to book an order for limited edition apparel
  • Offers for orders similar to previous purchases
  • An earlier opportunity to buy tickets for upcoming events

Which brings us to the key question: how does one identify Best Customers?

Tomorrow: Velvet Rope Marketing (Part 3)

Velvet Rope Marketing (Part 1)

Over the next year or two, companies are going to see profits under pressure, marketing budgets getting minimised and capital being constrained. At the same time, business needs to continue. What can enterprises do to strengthen their market positions given these limitations? The answer: Velvet Rope Marketing.

I recently read Sunil Gupta’s book, “Driving Digital Strategy.” There was one idea that stood out (among the many excellent ones in the book): the 200-20 Rule. Here is what he writes: “According to the familiar 80-20 rule, 20 percent of the customers provide 80 percent of the revenue. However, research shows that if we focus on profitability instead of revenues, the rule would be 200-20, where 20 percent of the customers provide almost 200 percent of the profit!  How is that possible? Because the remaining 80 percent of customers actually destroy profitability.”

I have also been thinking about another related idea outlined by Peter Fader in his two books on customer centricity – that of focusing on best customers to maximise profits. A few quotes from his books:

  • “The Customer” does not exist because every customer is different.
  • The customer is not always right. The right customers are always right.
  • In the world of customer-centricity, there are good customers…And then there is everybody else.

Building on the concepts outlined and through conversations with marketers, I came up with the idea of “Velvet Rope Marketing” (VRM) – focus on creating a differentiated experience for the Best Customers as identified by customer lifetime value (CLV) to maximise profits. Best Customers sign-up early, stay longer, spend more, spread wider and are serviced easier.

For these customers, companies need to roll out the “velvet rope” experience to treat them like royalty. We have seen the velvet rope (with the red carpet) at airline first class and business class check-in counters, and at the exclusive entrances at Disneyland. It creates exclusivity, envy and a feeling of being special. VRM can help generate additional revenues, higher profits, loyalty and word-of-mouth.

Tomorrow: Velvet Rope Marketing (Part 2)

Proficorns vs Unicorns (Part 6)

I realised that I had gone astray in the chase for valuation. I had become an investor in my business trying to become a unicorn (even though that word did not exist then). I had thrown all caution out of the window. We had hired indiscriminately, and had lost control of the expenses. I chased a rainbow. I had forgotten my own lessons in building IndiaWorld a decade ago. The sermons I gave on profitability – well, I had started doing exactly the opposite.

Bhavana opened my eyes. And I learnt a lesson I have not forgotten to this day. The purpose of a business is to create value for its shareholders, employees and customers. And it cannot do so if it is not profitable. It is hard to do it with an insatiable appetite of funds with all kinds of bad habits creeping in.

As it turns out, that story did have a happy ending. In less than a year, we made the business profitable. And Netcore has never lost money after that in the past 12 years.

We have gone through multiple shocks over the years – and every one of them has made us stronger. We are what Nassim Taleb would call antifragile. And that is probably true of all proficorns. Each one has a story to tell. But the world is fascinated by the stories of funds raised by young startups, not the profitability of older companies.

It is not that the world does not need capital to fund companies. Some businesses do require capital to begin with. The problem is when raising capital becomes the primary business model rather than embarking on a path to creating a profitable and sustainable business. That’s the contrast I wish to draw. There is an alternate model to build a business, and it is in times of crises that the differences stand out.

For entrepreneurs, the choice is for them to make. For me, building a business that is antifragile, that has the innate financial heft and freedom to convert a crisis into an opportunity, and that can hire and grow is the right way to do business. The Proficorn Way is my choice. What’s yours?

Proficorns vs Unicorns (Part 5)

Unicorns are fragile, while proficorns are antifragile. To understand this very important difference, let us first understand what Taleb means when he talks about something being antifragile. Here is an excerpt from his book:

Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better. This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes (say, chicken soup or steak tartare with a drop of cognac), the rise of cities, cultures, legal systems, equatorial forests, bacterial resistance … even our own existence as a species on this planet. And antifragility determines the boundary between what is living and organic (or complex), say, the human body, and what is inert, say, a physical object like the stapler on your desk.

The antifragile loves randomness and uncertainty, which also means— crucially—a love of errors, a certain class of errors. Antifragility has a singular property of allowing us to deal with the unknown, to do things without understanding them— and do them well. Let me be more aggressive: we are largely better at doing than we are at thinking, thanks to antifragility. I’d rather be dumb and antifragile than extremely smart and fragile, any time.

Crises make unicorns weaker and proficorns stronger. Unicorns are fragile, while proficorns are antifragile. It is the stresses that makes the proficorns who they are.

Netcore faced a big crisis around 2007-8. For a while, I too was taken up by the chase for valuations. Before I realised it, we were losing Rs 1 crore a month, chasing a mythical valuation of an SMS-led, capital-fed consumer business. It was at that time that my wife, Bhavana, returned to Netcore after a 3-year break following the birth of our son. She was aghast at what she saw and gave me an ultimatum: be profitable in a year, or shut the business down. Her training in accounts —  she is a CA — did not allow her to see money just being burnt at the altar of something as ephemeral as valuation! That was what opened my eyes. It was a lesson in financial management that I did not forget.

Tomorrow: Proficorns vs Unicorns (Part 6)

Proficorns vs Unicorns (Part 4)

For me in Netcore, this is a great opportunity to look at expansion – to complement organic growth with acquisitions. The money saved for rainy days now comes in handy. It is like the tale of the ant and grasshopper. All the past hard work can now bear fruit as new worlds open up and assets that were previously unavailable could perhaps be bought at attractive prices.

Opportunities come not just in the form of acquisitions, but also in the form of hiring talent and acquiring new customers. By viewing business as an infinite game, proficorns can use troubled times to lay a very strong foundation for the future.

Crises are an opportunity to put one’s head down and reimagine the world that will emerge on the other side. One cannot do that if one doesn’t have control over one’s own destiny. For the proficorn founders, there are no investors with blanket diktats breathing down their necks. They can sit back with a cool mind and not worry about the next quarter or two, but think of the future beyond. That is how breakthrough businesses are built. I have always believed that when I am building a business, even as I have to worry about Monday morning, we are actually “competing for the future” – one that we have to create.

In good times, everyone can thrive. Those who splurge more can perhaps move faster. But this growth has its costs. There are economic cycles. And when a slowdown or downturn comes, the fall can be fast. It is the bad times that separate the truly resilient ones from the others. The skin in the game that founders of proficorns have enables them to see around corners much better, and this creates a better built-to-last business.

So far, we have seen two big differences between unicorns and proficorns during tough times: the fire vs hire mindset, and a crisis vs opportunity worldview. There is a third big difference which gets magnified.

Tomorrow: Proficorns vs Unicorns (Part 5)

Proficorns vs Unicorns (Part 3)

The second big difference during challenging times is the mindset of the founders and entrepreneurs – unicorns see a crisis, proficorns see an opportunity. And central to this is the idea of “skin in the game.”

In unicorns, founders are left with a small stake after multiple rounds of funding. While the value of their holding increases (on paper), the investors become the majority owners of the company. It is not uncommon to see founders with just a 10-20% share in the company they founded. As a result, the investors call the shots. The founders become glorified managers in the very company they created. They are simply working to increase the wealth of the investors – for whom the company is just one among many investments. In other words, the founders have very little skin in the game.

As a result, when investors see a crisis because of capital and liquidity issues, the founders are forced to see the world the way the investors see it. It is time for “crisis management.” Customers are not the priority; protection of the invested capital is. And for that, if employees have to be fired, so be it. If customer service has to be reduced, so be it. Survival is the only goal that matters. This crisis mentality permeates all decision-making. It is like there is no tomorrow or the day after – just today that needs to be gotten through. Very few investors have the luxury of giving the founders the operational freedom to think long-term and make their own decisions.

In proficorns, a different mindset operates. The founders have no investors to report to. They have complete skin in the game. The company is their life’s work. If the company dies, they lose a part of themselves. Proficorns become what they become by going against the flow. And this is where founders of proficorns see a crisis as an opportunity. When others are panicking, it is time to sit with a cool head and think ahead – look beyond the immediate to the new world that will be created once the tempest fades away.

Tomorrow: Proficorns vs Unicorns (Part 4)

Proficorns vs Unicorns (Part 2)

When Netcore’s CEO, Kalpit Jain, asked me for advice on whether we should go ahead with our hiring plans or slow down, my answer to him was: “This is a great opportunity for us. We will increase our costs if we go ahead with the offers made and new hires planned and that will decrease our profitability for the coming year or two. But this is a time to build for the future. Let’s continue with business as usual, even though revenues will be lower. Focus on efficiency where possible, but let’s not try and overly worry about every line-item cost. Business is a continuum – if we can keep the focus on our employees and customers (because we have no investors to worry about), we will come out ahead. Raise the bar for hiring and go ahead. This is the time to improve our talent and make the right investments in the future – and quality talent is the best investment we can make. Because there always is a tomorrow.”

There is one more reason for not going aggressive on the hire-fire culture. It creates uncertainty, which leads to tension and mental agony for employees which then undermines performance. No one knows when the next wave of cuts will come. It pits management against the employees – at the time when both need to be in complete sync to make sure customers’ interests are not compromised.

At Netcore, I have always taken the long view – good times don’t always last so one must save for rainy days, and neither do the bad times. Keeping a cool head and stable work environment is very important to ensure that happy employees deliver their best. That is how long-term value is created. The temptation is always there to cut staff costs at tough times like this, but as they say, every action has a reaction. Damage to employee morale stays – memories don’t fade easily when teams are damaged, friendships are broken and it becomes a battle for survival among those left. These scars don’t heal easily.

Tomorrow: Proficorns vs Unicorns (Part 3)

Proficorns vs Unicorns (Part 1)

Previously I wrote about “Building a Proficorn”. (Decided to drop the hyphen in profi-corn after feedback from readers who said proficorn was a better way to write it.) Over the past month, as we have seen the coronavirus impact play out, we have also seen how companies have reacted in different ways to the crisis.

In this series, I will contrast the thinking between the proficorns and unicorns during difficult and uncertain times. While this is by no means a universal comparison, it will help accentuate two different models of building businesses. In the case of the proficorn approach, I will use examples from how my company, Netcore, has approached the challenges. The eventual choice is for each entrepreneur to make – given that each situation is unique.

Let me start with summarising what I wrote previously about the difference between a proficorn and a unicorn. I defined a proficorn as a company having four characteristics: profitable, private, promoter-funded and having a reasonable valuation (say, $100 million or more). This is an alternative to the “unicorn” growth model – where lots of capital is raised and burnt through quickly in the quest for rapid growth at all costs.

The first difference that has become clearly visible is that unicorns fire, while proficorns hire. We have seen many funded, loss-making startups lay off a part of their workforce. What goes up must come down. Even as they hire aggressively (perhaps overly so) during good times to focus on rapid growth without consideration of profitability, when the going gets tough the first instinct is to fire in order to control costs. There is also pressure from investors to control the burn – and employees tend to be one of the largest expenses.

Proficorns tend to view the world differently. Because of profits (and cash reserves) and without the external pressure of investors, proficorns can take the long-term view. One never wins by chasing the herd, but by being a contrarian. Proficorns can think beyond the immediate crisis and use the crisis to put their heads down and build for the new world after the immediate challenges have passed. In fact, at times like these, it is possible to even attract good talent – who have been fired by the hot-shot unicorns. So, the stability of a proficorn is an antidote to the mercurial nature of unicorns.

Tomorrow: Proficorns vs Unicorns (Part 2)

Liquidating Lutyens’ Delhi – Part 2

Lutyens’ Delhi was a symbol of the power and control that the British rulers exercised over the colonized people of India. In 1947, when the government of India changed hands from the British to Indians, Lutyens’ Delhi should have been returned to the people. The functionaries of the government of independent India should have demonstrated their commitment to the cause of nation building by living modestly, as befitting a nation that could not afford to continue to fund the extravagant lifestyles that the British enjoyed at the expense of the poor of India. But they did not do that.

How much do Indians pay for those who rule over them is hard to estimate. Just Lutyens’ Delhi has immense wealth locked up, wealth that could — and must be — given back to Indians. There are hundreds of bungalows sitting on prime lots of more than an acre each. Each bungalow occupies land valued at several hundred crores. A conservative estimate of the land value comes to around Rs 5 lakh crores.

Here is what I propose that Prime Minister Modi should do to stop this waste of public assets (and free up the locked-up wealth), and at the same time provide for the financial support to the poor during this crisis.

First, the politicians and babus must vacate their publicly provided, free accommodations in Lutyens’ Delhi. We ordinary citizens have to pay rent or buy our own houses. Why should the netas and babus get it for free? Like the rest of us, they should get a salary, and rent or buy the housing they want and can afford. This can be accomplished in a month. Remember, demonetisation was done overnight. The Prime Minister should give them all a month’s notice and demonstrate to the world that he means to correct the wrongs of the British Raj and that India is not going to tolerate it anymore.

The second part is to sell off the public property that is Lutyens’ Delhi. Public property, by definition, belongs to the public, and the public has the right to use it as and when they need to. The proceeds of the sale of Lutyens’ Delhi rightfully belong to all Indians equally, rich and poor. But because the economic effects of the pandemic disproportionately falls on the poor, I propose that the 15 crore families (about 60% of the population) who have been hardest hit be the first to receive their share of the money raised by the sale.

Each of the 15 crore families should receive Rs 30,000 in the next few months. It is not a large amount but it will help them enormously to get back on their feet. With the money, their demand for goods and services will pull industry to increase production, which in turn will generate jobs. While helping the poor, it will give a much-needed boost to the economy without damaging side-effects.

I call this proposal “Prime Minister’s Lutyens’ Delhi Liquidation Relief Yojana” or LLR Yojana. It is not a “universal basic income” (UBI) scheme since it is limited to the poor, and limited to the desperate time India faces now. For the longer term, I have proposed the Dhan Vapasi model, which looks a little like a UBI scheme but is actually a larger idea to bring all public assets currently under-utilised into production. That will increase jobs, incomes, and help create the infrastructure for boosting economic growth.

Liquidating Lutyens’ Delhi – Part 1

The ongoing global pandemic is proving to be the biggest challenge India’s economy has faced in the last few decades. The nation-wide lockdown has temporarily slowed the spread of the disease but it has also brought enormous hardship to the poor, who cannot afford the consequences of the loss of livelihood and the economic downturn it will inevitably lead to.

The poor urgently need assistance to avoid the dire effects of not having an income for several months. The rich have the luxury of dipping into their savings or borrowing; the poor don’t have those options. They have to rely on public assistance, and they need it now, not in some distant future. They need a basic income if they have to survive.

Problems are always unwelcome but sometimes if properly understood they present rare opportunities for much-needed and necessary changes. The pandemic presents an opportunity for the government of India to do what should have been done right after India became independent of the British Raj over 70 years ago.

The British rulers of India lived lavishly at the expense of Indian taxpayers — and everyone pays taxes. As foreign rulers, they considered it just and proper that they should live like kings while the people of India suffered poverty and deprivation. They lived in Lutyens’ Delhi in style befitting an imperial power ruling over colonial subjects.

With the end of British Raj, the white rulers vacated Lutyens’ Delhi. Those who took over control of the government of independent India — politicians and bureaucrats — moved into those lavish quarters. It is impossible to justify that. How can those who were supposed to serve the public live like they were imperial rulers of a subject people, and extremely poor people at that?

The basic morality and ethics of the governance of a democratic nation entails that the government is for the people, not for the politicians and bureaucrats. They are public servants, who serve at the will of the people. To serve the people, they must not live like kings. And it is not just a matter of optics. It is more than that it doesn’t “look good.” It shields those in government from understanding the daily struggles of the average Indian.

It is time for the Indian netas and babus to stop living in the lap of luxury, like their British predecessors did. It is also time to provide to the poor the financial support that they desperately need now. The pandemic has connected the two issues: to provide the poor the needed financial support, and to halt the waste of public money that goes into funding the extravagant lifestyles of the politicians and bureaucrats in Delhi and elsewhere.

Tomorrow: Liquidating Lutyens’ Delhi – Part 2