Two things happening at Holland-Mark right now. First, we’re in deep with the start up community. As of last night, the MassChallenge 2011 Awards sent a new batch of financed and confident entrepreneurs out into the world, which was a promising reminder that Boston is not shying away from innovation and opportunity. (We even have a district to prove it!) Secondly, we’ve been drinking Fred Reichheld’s Kool-Aid vis-s-vie the revised and expanded The Ultimate Question 2.0. To be clear, we’ve believed in the power of NPS since the Harvard Business Review introduced it to us years ago, but the release of Reichheld’s latest edition has a timeliness that makes it all the more relevant. There’s a simple system for measuring, structuring, and understanding opportunity and we’ve only begun to scratch the surface of what NPS as a system can do for businesses of all sizes.

But how can NPS guide decisions for how business like ours (businesses in the business of consulting other businesses) approach opportunities? It’s obvious that it’s more than a tool for measurement– meant more as a framework for guiding smart business decisions and positive growth– but is it possible that NPS could tell us what is a bad business altogether?

Groupon. The daily deal phenomenon has attacked our inboxes, removed our ability to assign accurate value to any good or service, and raised our standards while removing our desire to be… loyal. In retrospect, it’s easy to ask the question, “in an age where loyalty is becoming the most valuable customer attribute, can a business that promotes trial over relationship really be viable?” and even easier to say, “NO!” but the truth is that we wanted cost and experience to have a different relationship, and that led us all to discount that driving down cost can dramatically increase volume… and the experience is soon to follow.

So, what does this have to do with Mr. Reichheld and NPS? Everything. If you’ve read the book (either one), you’re familiar with the concept of good and bad profits. Bad profits are those made when the end game is profit and the means to that end does not take into account the emotional, intellectual, or experiential toll on the customer. Good profits, on the other hand, are those made with the willing–and happy– consent of the customer. In other words, it’s the age old adage, “you have to spend money to make money,” but with a twist. You have to spend money improving the lives of your customers and in turn they will spend money improving your bottom line. How? With loyalty that begets an enthusiastic referral to friends and family.

But Groupon is, by design, a bad profit for any business, specifically any small business. By investing money in short returns, companies dilute the experience for existing customers and in turn lose their good profits and promote short-term bad profits with disloyal “brand tourists.” Imagine if every company who offered a Groupon instead invested those losses in substantial perks for existing customers? The loyalty that it would engender would, theoretically, lead to sustained growth and profits.

Another way to look at it is through the lens of promoters, detractors, and passives. The elements of NPS. The “Groupon Gamble” is that passives– or those who are unfamiliar with the brand– can become promoters. Unfortunately, the reality of business is that with a massive influx of unmanageable business, you’ve gambled your promoters to passives and your passives to detractors, resulting in a business with upset regulars and a slew of strangers bad mouthing the experience all over the internet.

The good news is that it’s not over for Groupon. There is still ample opportunity for them to invest in good profits for their customers, the retail stores who trusted them to help build their business. Instead of diluting stock, perhaps investing in a system to help small business owners manage the boom in business and actively convert new faces into loyal customers. Essentially, Groupon could reposition itself as a good profit opportunity for businesses if they are willing to invest in good profits themselves. It’s a cycle that, if taken seriously, can benefit everyone– even investors in the beleaguered start up. The question is whether or not anyone is willing to step out of line and suggest radical change to promote a radical change in outcome?

Besides us.

Related articles

• Do Businesses Really Like Groupon? (blogher.com)
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It takes a certain confidence to be an entrepreneur. You’re brute-forcing something into the world that didn’t exist, in the face of indifference, cynicism, or even opposition. Not for the faint of heart.

The hardest part of a startup for me is that transition from where you have an inner circle of people excited about your idea, to where you connect with the real opportunity – what some call the point of “Product/Market Fit.” In that valley you’re trying to balance the conviction required to will something into existence with the need for openness and flexibility in “corrupting” your vision with feedback from the actual marketplace. Tricky stuff.

Working closely with a couple of serially successful entrepreneurs over the last few weeks, I’ve observed a pattern in their behavior. To a man, they are more concerned with getting rich than they are with being right.

We all have baggage. Among mine is that I like to be right. I really like to be right. And I’m right a lot. Which is nice.

Except when I’m not. And I’ve been wrong about some biggies in my swings at the plate.

Great entrepreneurs don’t care about being right… at least about whether they were right when they decided whatever they decided last week, or last month, or last year. They defend those choices in the manner of good dinner conversation… strong opinions, weakly held. Their focus is on doing what it takes now to give their businesses the best possible chance of success. I think there’s something in that for the rest of us.

I’m reading a book right now called The Power of Now, by an author Jeff Bussgang recommended in a recent blog post, Eckhart Tolle. One of the ideas that’s really stuck to me is that the past and the future are just “illusions of the mind.” They are fabrications, not real, and not worth concerning ourselves with. There is only now… only the moment we are in, and the choice of what we think, feel, or do in this moment.

It’s good advice in life, especially for entrepreneurs.

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As a person who both loves and believes in the power of thinking differently and the creation of distinct yet simple strategy to solve virtually any problem, I have been asking myself “Any ideas of how to fix all this?” I am pretty sure that hoping won’t work, that waiting is for wimps, and that delusion always ends up under-delivering…

So what about this:

Two economic theories merged as one.

It is believed that there are three variables to encourage a high performing economy, captured in what is called the TFP: Total Factor of Productivity (see I did remember something from business school!): the availability of capital, the quality and availability of an educated workforce, and an efficient infrastructure (technology and support services). That’s theory one. Theory two is my own: That which is not measured cannot be improved upon. It’s true of weight loss and it’s true of economic performance. The problem with the current measures of economic performance and measuring our country’s TFP is that they are too macro. They are measures which do not point to clear, actionable ways to improve (other than controlling the money supply).

What we really should be measuring more effectively (read specifically) is the performance of the real contributors to our economic viability: corporations and the people who work within them. We should be looking at the TFP of individual corporations and organizations (including not-for-profits), the TFP of their leadership, and the TFP of their employees. If we established different and specific measures of performance that focused on every entity’s capacity to create tangible value from resources allocated to it (capital), its ongoing effort to further its skills and abilities through formal education, and its efficient (or not) utilization of the tools and resources available, imagine the difference we might make. Another way of saying all this: What if we got more rigorous about how we measure our performance, and particularly the performance of white collar workers? Because the ability to have a higher performing economy is predicated on higher performing companies and governments which is predicated on higher performing leadership and employees…

As example, the formal measures of most white collar workers’ “productivity” are non-existent. If you show up, keep your head down, dutifully attend meetings, and do something every now and then, you’re being productive. There is little if any measurement of how much you have learned, how much you have created, or how proficient you have become at using the system or the tools. Another example is the small business sector. Many economists have declared that the GDP contribution from small businesses is essential to turning this mess around. If so, shouldn’t we be measuring the sectors’ TFP? And shouldn’t we be more focused as a government about making sure we are enabling that TFP: providing small businesses with the capital they need, delivering the education on how to run a small business, and creating the infrastructure to enable it all?

Now I know people will say that it’s all being worked on. But it’s being worked on without clear and specific measures of what constitutes improvement. There is no Small Business Education Index. Most companies don’t even have non-financial specific measures for the return on most investments (including marketing communications…) or an agreement on how much (and how) they want employees to learn over time.

It’s all akin to us saying our country needs to lose weight but not pinpointing who exactly, not declaring specific goals, not getting on the scale regularly to assess our collective and individual weight loss and not taking the actions necessary to maintain or improve on it.
We’ll just remain fat. And 80% of life-threatening diseases can be attributed to being fat.

My next post will be focused on applying this economic construct of TFP and more relevant measurement to my industry and agency. Stay tuned.

Let us know what you think, and what you’d like to see more of.

And yet…

I find it interesting that humble brands – local restaurants, obscure b-to-b specialists, retailers like this one – seem able to embrace the “Content Marketing” ethos more readily than their advertising-addicted counterparts.

I look at this primitive execution – unfocused, horribly designed, e-mail based, etc. – and can’t help but admire the way it’s rooted in the belief that the best way to sell is to inform and empower.

And you know what? This stuff works. It’s arguably the best of two worlds, combining pull-worthy content with push-enabled reach. That would certainly explain Constant Contact’s lofty growth and impressive market cap.

While I of course believe that a dose of “professional marketing” could make something like this a lot more effective, I think there’s much to be learned from it by me and my fellow Big-Time Brand Folk.

Look again. What do you see?

Think about it. We get hurt, we suffer, we get over it. Over time, the things that cause the biggest problems in our lives most often derive from our inability to see the whole truth – about ourselves, another person, or even a particular situation.

Pick a source of pain, maybe one in your own life. Lost love, bad relationship, maybe just not living the life you thought you’d live? In most cases I’ve come across, in my own life and others, the real source of life-scale problems is an inability to see, understand, or face the whole truth about some aspect of that problem. What about medical issues? Pick one, and I’ll point you to someone online who can at least claim to have overcome the true pain of a given illness by accepting it in the larger context of their own lives, and coming to terms with what that meant.

I have long held this belief, and it has a big impact on my approach to business in general and entrepreneurship in particular.

Each new company I’ve been a part of started in a specific direction – call it 180 degrees north – based on a commonly held belief in a set of external truths, and in an opportunity rooted in those truths. As the work to capitalize on that opportunity proceeded, those beliefs were tested against up-close observations in the real world. I’m talking about a hundred individual successes and failures, up and down the scale – uncomfortable conversations and sales triumphs, acrimonious departures and zealous new hires, failed forecasts and prophetic predictions. And with each new data point, the business concept evolves just a little. It moves 10 degrees left, 25 degrees right, a little at a time, as underlying assumptions are identified, confirmed or rejected.

For me this is the true process of entrepreneurship, managing the collision of a business plan and the real world – of an idea with the truth – that turns that idea into something that creates value for the people who believed in it first. That’s why entrepreneurial success is more about execution than it is strategy… because in the end, great execution brings your strategy in line with The Truth.

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