The CQ: Save Your Employees; Fire Your Customers
Occasionally, and strategically, business leaders should know when to let go of a client or account.
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Buzzing at the Forerunner Office…
The Customer Isn’t Always Right
By Brian O’Malley, Partner
@omal
When times are good, it is all about growth—all about momentum, and often at any cost. As founders take a step back to look more closely at their expenses to account for the changes in the market, it is also a good opportunity to look at revenue, as well. It is pretty widely understood that not all revenue is created equal. Earlier this month, we wrote about the importance of top customers. But few people discuss the reality that some revenue—and the customers behind it—can be a net-negative for your business, leeching needed resources from your company. This is especially true for B2B companies, but is also valid for B2C businesses with customers that are constantly returning items or always pinging customer support.
Over the past few years, startups have commonly taken the “make it up in volume” approach to driving new revenue, but unfortunately, many of these deals don’t really ever generate cash flow. Even the ones that have positive Gross Margin may have negative Contribution Margin when you factor in all the relevant variable costs below the line. Those may be obvious to make a call for, but what about revenue that has slightly positive margins?
We were recently talking with a Forerunner portfolio company working to get to profitability. They’re the leader in their category, but they frequently compete on price. Each deal has real human and opportunity costs, so the question was posed: "What if you raise your prices by 20%?" This would make them the clear most-expensive option in the space, but given their market position, isn’t that deserved? Wouldn’t some customers want to purchase from them just because they are the premium offering? Even if it drops revenue a bit, the incremental margin and ability to focus can make up the difference. If you aren’t the market leader, you need to understand why a particular customer is looking to purchase from you. If it is just because you’re willing to take the lowest margin, that isn’t particularly sustainable either.
Some revenue can lead you away from your North Star customer profile. Do they want things that you don’t plan to offer to others? Do they require a level of hand-holding or assistance that won’t work over time? We’ve all heard the Paul Graham adage, “Do things that don’t scale.” That is incredibly important when bringing a product to market, but in today’s tighter times, you might need to revert back to scalable actions earlier on by either dropping a customer or raising prices to cover the cost of handling them.
Realistically, you won’t fire all (or even many) of your customers. However, understanding the importance of each account—both strategically and from a cash-flow perspective—can help your team focus. Which ones are necessary to flush out the product? Which ones open doors to bigger opportunities? Which ones are ultimately needed to keep the doors open? Now is a great time to take a step back and reset your business—both on the expense and revenue side—to start building the good habits and repeatable growth necessary to rise above the noise in 2023.
This Week’s Top 10 Consumer Insights
Eating out just might be cheaper these days. Consumer prices at grocery stores and restaurants increased 13.1% and 7.6% YOY respectively in July, so consumers are opting to go eat at restaurants vs. buy groceries given the pricing dynamic.
Younger people have seen their credit card balances increase by ~25%+ among inflation YOY, which has led to an increased amount of loans and debt.
Despite a pullback in spending on high-ticket and luxury consumer items given the recessionary environment, retailers have noted that consumers are still purchasing beauty products. Sales of makeup are +20%, skincare +12%, fragrance +15%, and hair +28% to start the year.
Which social media giant is attracting the largest fan following? According to data from Pew Research, 95% of U.S. teens say they are YouTube users followed by 67% who say they use TikTok.
WFH or back to the office? Many workers prefer the former. As employers try to figure out remote, hybrid, and in-person solutions, some are tracking the productivity of their employees through remote monitoring systems.
Inflation is affecting more and more Americans. A new survey found that 85% of consumers have changed their purchase behavior due to inflation.
Walmart’s CEO said that rising food prices have led even wealthier families to feel pinched and consider saving. The retailer has seen a boost from new customers with higher incomes of $100,000+.
How does Gen Z view healthcare? In an in-depth consumer insights report on the topic, 43% of respondents claimed they don’t go to a primary care physician due to embarrassment or lack of trust.
If it feels like Covid is lurking everywhere, it’s likely because most people don’t know they have it. A recent study showed 56% of people who are infected with the Omicron variant are not aware of their infection.
Retailers are feeling the pressure from the macro environment, as excess inventory levels combined with inflation are continuing to wreak havoc on quarterly earnings.
Weekly Wisdom
“One thing that I do very often that I think is mandatory is to stop, look at my whole calendar for a week, figure out what type of meetings I’m having and make sure that I’m spending my time right. Are the things that I’m doing the most impactful that I can do for my position? And I stop having a lot of meetings that I was having every time I do this, and I add new meetings or change the cadence of meetings. Not too long ago, for example, I would meet with all of my managers every month. There’s almost 30 of them. It’s impossible to do that now. I still meet them, but we only meet if they have an agenda to discuss with me.”
—Marcelo Cortes, Co-Founder & CTO of Faire, shares his best productivity hack with Protocol.
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Forerunner Highlights
This week, Brian talked to Anne Sraders at Fortune about why investors are so interested in the real estate market.
This October, Kirsten will be sitting down with Faire Co-Founder & COO Jeff Kolovson at TechCrunch Disrupt to talk about challenges and triumphs in a rapidly evolving retail landscape.
Portfolio Highlights
Faire just announced the launch of its Showroom, “a curated destination for retailers to shop premium fashion brands on the platform.”
Prose just launched a new styling gel to better serve curly-haired consumers.
Nate Founder & CEO Albert Saniger talks about the merging of digital and physical worlds on Fast Company’s ‘Most Innovative Companies’ Podcast.
Work at a Portfolio Company
Banking Operations Manager, Ampla | Ampla is on a mission to provide tech-enabled financial solutions to help consumer brands grow and scale.
This role will operate both hands-on day-to-day with customer-facing teams and our bank partners to resolve complex banking issues while crafting and driving a long-term strategic vision for our banking operations and processes.
Partner Success, Catch | Catch is on a mission to unlock more rewarding relationships between merchants and their customers, starting with changing the way we pay for things online.
As a member of the partner success team, this role will own a portion of the brand portfolio and will be responsible for building relationships and driving growth with a focus on key performance indicators.
Growth Analytics Associate, Faire | Faire is an online wholesale marketplace built on the belief that the future is local — there are over 2 million independent retailers in North America and Europe doing more than $2 trillion in revenue.
This person will serve as a key partner to Strategic Finance and Performance Marketing, owning marketing payback framework, planning, performance marketing channel analyses, and attribution over time.
There are ~942 other openings on our jobs site. Check ‘em out.