Misaligned long-term interests between companies and customers

There are some honorable businesses out there that take a noticeably short-term view. I have nothing against these companies—in fact, I met my fiancée through one such company (more on this later)—but I’d never start a business that falls into the short view category. Their issue is that they suffer from misaligned long-term interests with their own customer base.

At first glance, it’s not so easy to spot a short-view company, because their short–view approach doesn’t always come at the expense of the customer. Instead, it’s usually the company that bears the brunt of the short-term thinking.

Let’s look at some examples:

ClassPass

For a monthly fee, ClassPass users have access to up to a certain amount of fitness classes per month at participating gyms, barre studios, spin clubs, etc. ClassPass pays the participating gyms a negotiated rate for each class that a ClassPass user attends.

This means that the success of ClassPass is inversely correlated to the success of its users, because ClassPass’s income from a user is the same each month, whereas it’s cost for that user depends on the number of classes the user attends. So, ClassPass makes less money when its users exercise more, and more money when its users exercise less.

What’s worse for ClassPass’s long term prospects is that when the user has achieved ultimate success (e.g., finds a gym through ClassPass that they want to join), they may very well drop ClassPass altogether.

The success of the company is not aligned with the success of its users. It’s a win-lose situation.

My fiancée found a gym through ClassPass that she joined and now goes to six days a week. She loves it and wouldn’t have found it without ClassPass. Unfortunately for ClassPass, the service was so great for her that she no longer needs it. For her sake, I’m happy that ClassPass exists. But I’d never start a company whose interests are misaligned with those of its customers.

Dating sites

My fiancée and I met through a dating site, which is another type of company that I’m really glad exists but that I’d desperately avoid starting.

In the case of the dating site, the business model itself is less flawed than that of ClassPass, because the dating site doesn’t suffer from the variable costs that a ClassPass-type of company suffers from.

But the dating site is constantly swimming against the current in its quest for new users due to more misaligned interests, which are pretty obvious in this case: a successful dating site user finds the person they want to spend their life with and immediately proceeds to cancel their subscription to the site because they no longer need it. (If they don’t, their newfound partner should be a little nervous).

The better an experience a dating site provides, the more it churns through users. Granted, there will always be a huge market of people looking for love.

Incidentally, my fiancée and I met through Tinder, which at the time was completely free. Once our relationship started, Tinder didn’t lose out on revenue at the time (because they didn’t have a revenue stream yet), but they did lose two users.

The thought of a company having misaligned long-term interests with its customers sounds like there’s something shady going on. But in both examples above, the companies are not being evil to customers. If anything, the companies are being evil to themselves to the benefit of their customers. While that’s very honorable, it’s not the type of business I’d ever want to start, because it’s a business that is setting itself up for extra difficulty or even failure in the long term.

In any company I get involved in, I’m going to make sure that the company wins (and all other stakeholders win) when the customer wins.

Not Impressed by TV Spots These Days

I’m tired of seeing the same old ideas being recycled again and again in TV commercials. It’s obnoxious. Isn’t there someone in the ad agencies who should know whether an idea has been done before?

Here are a couple that stick out to me as just copying one another:

Coke Zero vs. Ford

Coke Zero was first to the punch with this concept. Ford, thanks for reminding me that “and” is better than “or.” I had forgotten that important concept in the one year since the Coke Zero campaign came out! (Not!)

Fidelity vs. Carmax

But what do I do if the imaginary line on the ground is both green and says “Start”?

There are many more examples of uninspired ads out there, and I’ll try to call them out as I seem them.

Listen to Customers, Not Trolls

An article was posted recently in a local tech entrepreneurship-focused Facebook group that a DC entrepreneur would be on Shark Tank. The comment thread was disappointing to me:

Screen Shot 2014-01-01 at 4.12.52 PMScreen Shot 2014-01-01 at 4.13.22 PM Screen Shot 2014-01-01 at 4.13.49 PM Screen Shot 2014-01-01 at 4.14.08 PM Screen Shot 2014-01-01 at 4.14.22 PM

Here’s the rant I wanted to post on the thread but never got around to it:

This comment thread is really disappointing to read. Normally, it wouldn’t be a concern because entrepreneurs run into naysayers all the time when it comes to their business ideas. But to do that in this particular forum is destructive. I know for a fact that there are hundreds of members in this very fb group thinking about taking the leap into entrepreneurship. Then they see trolling like this, and then they second-guess their idea, worrying that it will be met with this sort of criticism.

It would be one thing if the naysaying in this case was justified. The fact of the matter is that this particular entrepreneur is shipping (literally shipping—and not just in the overused metaphorical sense) thousands of units of his product to customers who are recognizing a need and paying him the $6.99 or whatever it is for it. He took a lean approach to starting the company, validating a market for his product in the form of having paying customers, and now he’s about to land some huge publicity.

To the folks out there thinking about taking the leap into entrepreneurship: it doesn’t matter what 4 guys on a facebook thread think about your idea. Get it in front of customers, and let their credit card do the talking. Like this guy did.

As for the relevance of this product to the DC Tech brand, I’m just not concerned that VCs will base their full impression of the DC Tech community on some guy’s side project that was featured on a very physical product-focused TV show. As for whether or not the sharks will invest… who cares? The publicity will be huge.

As for the relevance to tech in general, his sole distribution channel right now is a landing page that he mocked up. Arguably, Amazon wasn’t much different when it first launched (though they weren’t manufacturing their own products). Will eyebloc be the next Amazon? Probably not. But you never know how businesses will evolve as they develop relationships with paying customers.

U-Mask and the U-Tabe (sic?) are obviously a joke, but the fact that the first thought is to put them on AngelList for feedback rather than in front customers is a little concerning. (Again, I know it’s a joke, but wondering if the joke is indicative of the current prevailing mindset among startup founders). Rather than put the idea up on AngelList, why not put it in front of customers to see if they’ll buy it?

We should be more encouraging of people putting themselves out there in front of customers.

On the Shortness of Life

I was doing some cleaning today and stumbled across a piece of paper with a quote I had scribbled down awhile back. The quote was from Seneca’s On the Shortness of Life:

Indeed the state of all who are preoccupied is wretched, but the most wretched are those who are toiling not even at their own preoccupations, but must regulate their sleep by another’s, and their walk by another’s pace… If such people want to know how short their lives are, let them reflect how small a portion is their own.

On the Shortness of Life

This quote really struck a chord with me when I first read it in early 2011. At the time, I had a stable job with a great benefits package in a Fortune 500 company. But I was stuck in a cubicle all day—bearing unnecessary amounts of stress—to try to essentially make the company’s wealthy shareholders even wealthier. Re-reading the quote, I came to the harsh realization that my job situation was forcing me to “regulate [my] sleep by another’s.”

Seneca’s essay definitely influenced my decision to take the leap into entrepreneurship, which I ended up doing within six months, and—despite many difficulties along the way—I haven’t looked back. Thanks, Seneca!

Battle

I had previously started a series of posts on songs that are meaningful for entrepreneurs. I have also found meaningful passages in the last few pieces of fiction I’ve read, so I’ll widen the scope of that series of posts to ‘the arts’ in general—not just music.

lonesomedoveThe inspiration for this post comes from a novel I’m reading, Lonesome Dove by Larry McMurtry. I’m not even finished yet, but this epic Western is already one of my favorite books of all time.

The following scene—which finds one of the novel’s heroes after he single-handedly fended off a group of enemy attackers—contains an apt analogy for the entrepreneurship experience:

With no shooting to do for a little while, Augustus took stock of the situation and decided the worst part of it was that he had no one to talk to. He had been within a minute or two of death, which could not be said to be boring, exactly—but even desperate battle was lacking in something if there was no one to discuss it with. What had made battle interesting over the years was not his opponents but his colleagues. It was fascinating, at least to him, to see how the men he had fought with most often reacted to the stimulus of attack.

Admittedly, the analogy between entrepreneurship and ‘going into battle’ is somewhat cliché, but this passage digs a little deeper than the simple analogy. Entrepreneurship is so much easier when you have a business partner to talk to about the emotional rollercoaster that is entrepreneurship. I am grateful that my business partner, Lauryn, is right beside me on that rollercoaster. Though, I’m not sure which one of us would be Gus and which would be Call.