A company's economics--essentially, how it makes money--aren't determined internally. They're determined by customers. An entrepreneur may believe deep in her heart that her product or service is worth more than the cost of providing it. But if her prospective customers don't agree, she doesn't have a business.
Customers, however, are a fickle bunch. A market shift, a new competitor, changing tastes--suddenly they want something different than they did before. The pandemic upended all kinds of customer needs and preferences. Who knew last February that so many people would be buying hand sanitizer in April? Or that restaurant goers would suddenly require expanded takeout and outdoor dining facilities?
Large companies in recent years have rediscovered the importance of listening closely to customers. According to Fortune, two-thirds of the biggest corporations now employ a system called Net Promoter. These companies regularly ask customers (1) how likely they would be to recommend the company (or a particular product) to a friend or colleague, and (2) why they gave the rating they did. For global businesses with a zillion customers, the ratings and verbatim responses are an effective method of learning what those customers are valuing right now.
Entrepreneurial companies--particularly in the B2B space--have a simpler task. Their customers typically measure in the dozens or the hundreds rather than in the hundreds of thousands. Still, it always amazes us how few smaller businesses stay in regular, systematic touch with their customers--all their customers, not just the ones they're doing business with at the moment. So naturally they get caught off base when customers change their minds and their behavior.
FA Engineering, a 35-person firm in Pocatello, Idaho, learned this lesson the hard way. A few years ago, the company's two biggest customers unexpectedly reduced their demand for FAE's services. Faced with a shrinking backlog, the firm asked all of its engineers to begin calling past and current customers. The script started with thanking the customer for past business, and then asked the same two Net Promoter questions. By the end of the first week, the group had conducted nine interviews, yielding two proposal opportunities and eight referrals to companies that might be able to use FAE's services.
Ever since, FAE's engineers and drafters get on the phone with customers regularly. The calls often lead to repeat and referral business, just as in that first round. They also inform the company's sales and marketing efforts. At one point, for instance, the engineers learned just how much customers liked FAE's 3-D scanning technology, which produces rapid models of a customer's facilities. Check out FAE's website today and you'll see the scanning capability highlighted.
Matt Plaskoff, founder and president of Los Angeles-based One Week Bath, takes a different approach. Every quarter, Plaskoff meets for an extended dinner with what he calls his customer council, comprising homeowners who had engaged the company to remodel their bathrooms. The agenda is informal, but always includes a presentation from the CEO on company issues and new developments. The customers talk each one over, and company attendees take notes. The meetings have led to new product offerings, a referral program, and some useful information on how customers perceive safety in the wake of the pandemic.
Plaskoff, as president and majority owner, is naturally responsible for decisions about One Week Bath's strategy and direction. But, like FAE's leaders, he isn't making those decisions in a vacuum. These entrepreneurs know deep in their hearts that the ultimate determinant of a company's economics is the customer, so the more they can learn from their customers, the better. And since they involve so many team members in the conversations, everyone in the company begins to understand what customers are thinking. There's no better lesson in business economics.