This is a guest post from James Slavet of venture firm Greylock Partners,which invested in LinkedIn, Groupon, Pandora, Redfin and One Kings Lane. Slavet represents Greylock on the boards of Redfin and One Kings Lane.
“A man without a smiling face must not open a shop.” – Chinese proverb
The next generation of great companies will be led by CEOs who are serious about great customer service. The quality of a company’s customer service matters as much as the quality of its code. Algorithms can fail, patents can expire, but a reputation for great service endures.
The fundamental trait of the ideal Silicon Valley startup has long been scalability. A ten-person team can build and deliver a product to ten million people, and that’s a beautiful thing. But there are times in business when you need to do things that do not scale—times when good, old-fashioned human touch is essential to address customers’ needs.
I see hundreds of new consumer Internet business presentations each year. A growing percentage of entrepreneurs are now adding “World Class Customer Service” as a bullet point in their investor presentations. It’s a buzzword of the times, perhaps inspired by the success stories of recently acquired companies such as Zappos and Diapers.com—strong businesses built on foundations of top-tier customer service. I’m hopeful that we will experience a generation of entrepreneurs who make customer service a priority. But great customer service requires more than a bullet point on a slide. It has to start with a deep understanding and commitment by the CEO.
The impact of customer service has been amplified in today’s environment. Businesses compete intensely for talent and customers, and positive and negative sentiment spread faster than ever before. Great customer service builds employee morale. Everyone wants to be proud of where they work and people are more engaged and productive if they work for a company that is committed to doing whatever it takes to consistently deliver an awesome experience for customers. Great customer service is critical for attracting repeat customers and building positive word of mouth and a respected brand.
When customer service is mishandled, the results can be tragic. Dave Carroll is a Canadian musician who decided to chronicle a real life experience of how his guitar was broken during a trip on United Airlines, and the subsequent reaction from the airline. United failed to accept responsibility and refused to pay for the damage to Carroll’s guitar.
Carroll’s resulting tribute song, “United Breaks Guitars,” became an instant hit on Youtube, and was viewed more than 10 million times. The reaction was so strong that Carroll ended up writing not one but two sequels. Trust me when I say you never, ever want your company to be named in the hook of one of this guy’s songs.
“You broke it and should fix it, you might as well admit it, I should have flown with someone else or gone by car, ‘cause United breaks guitars.”
Business Insider recently published a list of 20 companies with the best customer service (yes Zappos was #1). I’ve reflected on the common practices the CEOs of these companies share, as well as my own experiences working directly with CEOs in Greylock-backed companies, to develop this list of the seven signs.
Sign #1: You don’t need an advanced degree to get in touch with customer service
Most consumer Internet sites make it nearly impossible to get in touch with a live person to address a problem. The help section is buried many links deep if you can find it at all. The customer has to fill out a form or an email and he or she is given no sense of whether or when a response may be coming.
Customer service-focused companies make the path to help more accessible, and they give the customer a choice of how to interact and get help, whether by phone, Skype, chat or email.
Go ahead and type Diapers.com into your browser. You’ll find their phone number is listed clearly on the top right section of their home page and persistently throughout the site. Even better is the page below – they actually like receiving phone calls?
There’s a reason to like customer calls. As Tony Hsieh, founder of Zappos, wrote in his autobiographical book Delivering Happiness, only 5% of Zappos sales happen over the phone, but Zappos views each customer service contact as an opportunity to create a lasting positive memory with the customer.
“There have been few successful men who weren’t good at details. Don’t ignore details. Lick them.” William B. Given Jr.
Sign #2: An economically irrational obsession with details of the customer experience
Question: “What details of the customer experience are you most proud of?”
Companies that deliver a memorable customer experience usually have leaders who have an economically irrational obsession with the many composite details that make up the whole. Whenever you un-box a new Appleproduct, you can feel the way Steve Jobs must have personally obsessed about every beautiful detail, instead of trying to find the cheapest way to get it made. Customer-focused CEOs talk in intimate and loving detail about the specific product and experience choices that were made, and they will absolutely lose it when the details of the customer experience go awry.
“Economically irrational” decisions can turn out to be investments, when the company has the long term view in mind. I recently discussed this obsession with the customer experience with Bob Paquin, former SVP of Operations/IT at LL Bean and former COO at Blue Nile. Paquin told me about the time LL Bean was late on a canoe delivery and one of his team members strapped the canoe on the top of his car and travelled from company headquarters in Freeport, Me. to New Jersey to make a personal delivery to the customer, who was about to take off on a trip down the Delaware river.
From a business perspective “no questions asked” returns and “go the extra mile” service may seem costly and irrational. However it turns out not to be a prohibitive cost because very few customers take LL Bean up on their offers of never-ending product returns or employee-expedited delivery. Customers are just happy to know that if they wanted to, they could.
An obsession with small details extends beyond getting the basics right. The personality of the CEO, and the company, should come through in small but important touches. In a world of service level agreements, how can a company do something unexpected, quirky and memorable to make the customer smile? Whether it be a handwritten note to the company’s most loyal customers, or a gift to say thanks to a customer for a referral. The gift will have a more profound impact on the customer if it’s delivered as a thoughtful surprise thank you later, rather than as a “referral incentive” up front.
Sign #3: A personal groove with customers
Question: “How do you personally connect with your customers?”
Have you ever seen the show “Undercover Boss” on CBS? It captures the essence of what’s wrong with most of corporate America. Many CEOs are disconnected from the realities of the front line, where their employees interact with customers every day.
CEOs who are out on the front lines tend to have an special emotional connection with their customers –it’s a kinship, a bond, a love. It just feels different than a sterile company-to-customer interaction. Customer service-focused CEOs find lots of ways to interact directly with their customers and to nurture the relationship. They communicate and listen by blogging and tweeting, but they also find more direct ways to stay in touch.
Tim Westergren, the founder of Pandora, has built a deep groove with Pandora’s customers over the course of a decade. He personally answered all customer emails in the early years of the company. Now that Pandora has almost 50 million users, Tim can’t personally handle all of the customer email any more, but his customer-focused instincts ensure that Pandora still responds to every email that comes into the company with a personal response from a real live human. Tim also gets out from behind his keyboard by regularly organizing meet-ups where he travels to towns across the country to meet and directly connect with avid Pandora fans. Connecting directly and in-person with customers arms you with concrete stories that you can take back to your team to work on solving real problems.
Sign #4: The CEO channels the voice of the customer
Question: “Can you forward me a few of your recent all-company email updates?”
Many CEOs send out a regular email update to the whole company, perhaps once a month, as a way to share what’s on their mind and how things are going. It’s interesting to see what different CEOs choose to communicate in these emails. Some focus on the company’s strategy, creative marketing campaigns or financial performance. Customer-focused CEOs mostly write about the customer. They do this naturally—it’s what they really care about, and it’s also where they want their team to focus.
Redfin is an online real estate brokerage. Its CEO, Glenn Kelman, copies me and the rest of the company’s board of directors on his all-company email updates. Glenn is very focused on catching people doing good things and highlighting it when they do. His recent email included links to online videos of Redfin customer focus groups, followed by a quantitative report tracking Redfin’s Net Promoter Score (which captures the likelihood of Redfin’s customers to recommend the service to a friend). The next section of his email highlights quotes from customers sharing their experiences with Redfin’s agents.
Customer service-focused CEOs create a virtuous cycle by celebrating great stories from customers. Doing so inspires everyone in the company to do right by the customer. Glenn always seems to find quotes that are specific, interesting and energizing. A few recent gems:
“Sue is fantastic…I followed her on my scooter and didn’t feel judged at all!”
“It’s magnificent! I want to have sex with this Web site but I’m married!”
Of course, it feels good to be Sue or a member of the product team. Not only do you know that the customer deeply appreciates your work, but the CEO has broadcasted it to every one of your coworkers.
Sign #5: A “Moneyball” approach to service
Question: “How much do you invest each year in marketing? How much do you invest in customer service? Why?”
Marketing has been transformed over the past decade through the rise of the “Moneyball CMO”. It’s time that more companies took a Moneyball approach to customer service. Marketing investments aren’t made on faith today, but most customer service investments are, and that’s part of the problem. Marketing gets funded because there is an entire economy around measuring marketing’s impact on revenues. What if more companies did the same with customer service’s impact on revenues?
Contrary to popular belief, customer service is not a cost center like payroll processing or other non-strategic business functions. In those areas, the less spent, the better. Customer service should more properly be regarded as a strategic investment. If you’re building your business for the long term, you need to make the necessary investments to make your customer service great. Zappos CEO Tony Hsieh is quite eloquent on this topic. He says that companies should look at their customer service team as a form of marketing investment. Each customer contact is an opportunity to retain a customer, create positive word of mouth, and build the brand.
Most companies don’t give real consideration to the trade-offs of an incremental dollar spent on paid customer acquisition versus that same dollar spent on customer service. By not calculating this tradeoff, many are dramatically under-investing in customer service. Some internet companies would be better off cutting back on their lowest performing marketing programs and staffing up more fully on customer service. As Bob Paquin, the former COO of Blue Nile said to me “leaders who don’t invest in customer service are dealing in a false economy.”
A customer service-focused CEO challenges his marketing and customer service leaders to see who can produce the best ROI. Let’s consider the following scenario. Say the fully loaded cost of a customer service rep is $50,000 per year. So ten reps would cost $500,000. What are ten high-performing customer service reps worth as a marketing and brand building investment? If the average rep can positively impact 25 customers per day, that would be over 60,000 positive customer interactions generated by this ten-person team over the course of a year. If each positively impacted customer spread the word to just two friends, then that would be 180,000 positively impacted customers, at an average cost of less than $3 per customer. Is that a worthwhile investment, relative to what $500,000 in paid marketing might generate? I’d guess in many situations that answer would be yes.
It’s rare to see a CEO who includes customer service metrics prominently in his core operating performance dashboard, alongside revenue, margin and customer counts. What is the success rate of resolving customer issues on the first in-bound call? What is the average response time to incoming emails? How long is the average phone customer put on hold? The average call hold time for U.S. businesses in 9.5 minutes. Ouch. Many other interesting stats can be found at the Get Satisfaction blog.
Sign #6: More focused on measures of customer quality versus customer quantity
Question: “How do you measure customer engagement?”
Some companies focus more on pumping up top-line stats as opposed to solidifying the experience for their core existing customers. It’s very tempting for the CEO to focus his attention on user growth metrics. It feels good to talk about the biggest numbers possible.
Customer-focused leaders are inclined to focus their attention on metrics that capture customer quality, and that ultimately drive more enduring value for the business. They know that it costs six-to-seven times as much to acquire a new customer as it does to keep an existing one.
When I first met with CEO Doug Mack to discuss the One King’s Lane business, I noticed that he was far more focused on the number of transacting customers and repeat transacting customers than he was the aggregate number of email subscribers.
Sign #7: Customer satisfaction drives team pay, starting with the CEO
Question: “How is customer satisfaction factored into your team’s compensation?”
An increasing number of companies are now capturing the net promoter score of their customers as an indication of satisfaction and likelihood to recommend. That’s a good thing.
But it’s rare to see a company that actually makes customer satisfaction measures a core part of how employees get paid. Real estate agents who work for Redfin are paid a bonus for each home purchase or sale that they facilitate. However the dollar amount of this bonus is paid on a sliding scale that goes up or down based upon the customer’s net promoter score. Agents are not paid at all if the customer is unhappy—even if a transaction closes. This compensation structure gives Redfin’s agents more incentive to stay focused on what’s best for the customer. This contrasts with traditional real estate brokerages who pay on a pure commission basis; the more you pay for the home the more your broker gets paid, whether he did a great job or not. Redfin also tracks the aggregate net promoter score of their customers, and this score ranks alongside revenue and profitability as a core factor in annual compensation from the CEO on down.
We should all strive to build hyper-scalable businesses, but not at the expense of ensuring a great experience for the customer. It is exciting to see more CEOs promoting world class customer service as a point of differentiation for their businesses. Those CEOs who back up their claim through their daily practices as leaders will have the best chance of building the next generation of great and enduring companies.
*Disclosure: Greylock Partners is an investor in Pandora, Redfin and One Kings Lane, and James Slavet represents Greylock on the boards of Redfin and One Kings Lane.