Working backwards from the customer journey. Image by Midjourney from an author prompt.
The paradox of winning through listening
A luxury brand leader
I knew a senior executive at a global luxury brand that dominated its sector across every major city throughout the 80’s and 90’s.
Wherever luxury goods were sold — London, Paris, New York, Palm Beach, Beverly Hills — the brand was there, and was essentially a category of one.
As an executive who spent nearly every day in a store on a continuous basis, making sales and talking to people, they had an evolved sense of what resonated with their best customers. This awareness informed their regular trips back to the factory, where they made recommendations on styles, designs, and lines that would sell best across each market.
The executive and design leadership in place at the time was receptive, and this constructive working relationship proved an effective formula that resulted in double-digit sales increases every year, creating a global brand renowned for its refined style that extended to lucrative licensing agreements.
Until there was a change at the top.
Pushing the design envelope…
Despite not spending time in stores or being close to customers, the new leadership team had very different ideas about the brand’s direction.
They had some very strong ideas to “improve” the brand through a broad set of avant-garde, cutting-edge design “upgrades.” When presented with one particularly “edgy” collection, the executive I knew expressed skepticism whether the new approach would be embraced by their core customers.
They were brusquely informed:
“Enough. The customers will buy what we tell them to buy.”
Fast forward a few years, and things rapidly unraveled as sales plummeted, store after store closed, and the brand was subsequently sold off for a fraction of its peak value.
Decoding failure
What happened? How could things have gone so wrong?
What was the “edgy” design strategy missing, and for that matter, so many other business strategies?
A central focus on working backwards from, and consistently delivering, great experiences for their core customers.
Why is starting from your core customer so central to strategy?
Here are three practical reasons why putting the client at the center of your strategy makes practical, bottom-line sense for your business:
- Because you can only optimize for one thing at a time
- Because you can’t make your clients do what you want them to do
- Because it’s the only way to effectively serve the right customers
Let’s review each below.
#1. Because you can only optimize for one thing at a time
We’re now in the age of Customer Capitalism
Originally introduced in 2010 by Roger L. Martin (the leading strategy expert whose “Designing Strategy” course I was fortunate to take) in his HBR piece “A New Age of Customer Capitalism,” and further refined and expanded in the chapter “Stakeholders” in his 2022 book “A New Way to Think,” Martin lays out how after having moved through the first two ages of capitalism:
#1–1932 — Managerial Capitalism: Companies should be run by professional managers
#2–1976 — Shareholder Capitalism: Companies exist to maximize shareholder wealth
We’ve now arrived at the third, and current age of capitalism:
#3–2010 — Customer Capitalism: Companies exist to maximize customer satisfaction
As we’ll see, putting customers at the center of your strategy results in a number of positive downstream effects.
Can’t organizations optimize for both customers AND shareholders?
By definition, “optimizing” for something means you continually return to that central focus as your main guardrail and prioritization criterion.
Paradoxically, Martin points out that organizations that make customers their main focus have actually done better for shareholders.
Citing the guiding principles of both J&J and P&G, he states:
“Why is it that companies that don’t focus on maximizing shareholder value deliver such impressive returns? Because their CEOs are free to concentrate on building the real business, rather than on managing shareholder expectations.”
Roger L. Martin, “A New Age of Customer Capitalism”
Simply put, executives caught chasing cyclical stock price variations will focus on one short-term stock price “hack” after another (Ex., slash senior personnel, slash R&D).
This leaves their successor with an organization incapable of maintaining any kind of long-term viability.
Leaders set the tone
How leaders speak about who they’re optimizing for — shareholders vs. clients — sets such a powerful tone for the culture, and how everyone else in their organization responds to customers in their day-to-day actions.
As we’ll see, there’s a big difference between how the most client-centric organizations design their strategies, and the rest.
The gold standard of customer-centricity
When we reverse-engineer numerous organizations that have established long track records of success and their strategies:
- Amazon
- Procter & Gamble
- Toyota
- Apple
The overarching strategy unifying all of them is their focus on innovation in the service of delivering great client experiences.
AG Lafley consciously went in with a customer-centric strategy when taking over the reigns as P&G CEO:
“I explicitly placed the consumer at the center of it all. I prioritized the consumer ahead of all other stakeholders, including customers, shareholders, and employees. I started with consumers, because the purpose of a business is to create consumers and to serve them better than anyone else can. No consumers, no business.”
Lafley, A.G.; Martin, Roger L.. Playing to Win (p. 180). Harvard Business Review Press. Kindle Edition.
And how did P&G fare under Lafley’s guidance as CEO with this simple and customer-centric approach?
P&G doubled their sales, quadrupled profits, and increased their total market value by $100 billion.
Forgetting the path to success starts with the customer
But many other once-great organizations have slipped into irrelevance, and I would bring it back to the same things:
- No longer optimizing for innovation in the service of great client experiences
- Forgetting to start from a clear client need
Whenever leadership focuses more on keeping the ever-increasing behemoth of a company running than on client-centric measures of success, experiences for their existing users will invariably suffer.
Roadmaps of upcoming services and features to be delivered, previously devoted to innovation and client satisfaction in the drive to Product/Market Fit, become weighed down with maintenance and “BAU” (“Business As Usual”) work.
While there are inevitable cycles of birth, ascension, maturity, and decline, the older client-centric organizations identified above have managed to stay just as relevant today.
These organizations have learned to keep their focus on what Amazon calls “Input” metrics — Leading client-centricindicators of success and satisfaction, instead of Output Metrics, Lagging Business Impact metrics of Revenue, Profit, and Sentiment.
And there’s no more lagging output metric than share price.
Yet without focusing on Input metrics, rest assured there will be very little to show in terms of Output Metrics.
Why?
#2. Because you can’t make your clients do anything
Strategy involves making a set of choices to set your organization up for people to voluntarily want to give you money
This overarching strategy is then activated by strong product management skills and expertise.
But it’s harder and runs against many organization’s ways of working because it not only involves making hard choices about what you’ll do, just as importantly, it’s being clear about what you won’t do.
“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully.”
Steve Jobs
Aligning to an integrated set of strategic choices focused on delivering value to a specific customer, product management works to deeply understand the target customer’s needs, and improves and innovates within those constraints to continuously create and sustain rewarding experiences that naturally lead to increased interaction, purchase, ongoing customer loyalty, and a thriving user base.
But most organizations won’t focus on the need for the subtlety and effectiveness of strategy or product management.
Responding to the unfolding banking crisis
As I write this, the financial services industry is going through some tough times.
In the wake of two of the biggest failures in banking history, investor and customer confidence are at all-time lows, especially for smaller, regional banks. Now in an existential fight for their lives, every small bank now sees increasing deposits and growing their user base as the two things determining their future viability to weather this downturn, and continue serving their clients.
But customers have legitimate concerns for their hard-earned money, causing them to flee the smaller, potentially risky banks for the comfort and safety of larger, more established financial institutions.
At this crossroads, financial services organizations have two choices:
- Either use existing channels and approaches to “urge” customers and prospects to increase deposits or become a new client
- Or get closer to clients and prospects, take a deeper look at what they might need, what they might not be getting, and how to address their underlying concerns, and tailor new offerings via new channels and messaging appropriately
Without a firm grounding in a customer-centric approach to strategy and product management, I’d be concerned many financial institutions may not be as successful in reaching their targeted goals of increased deposits and new customers.
What can they do instead?
A powerful question
Design Thinking offers one way to frame a powerful, client-centric question that could potentially lead to a constructive set of strategic choices, and form the foundation of effective product discovery and product management efforts.
“How might we create a compelling set of offerings and services so our clients overwhelmingly choose to bank with us?”
Many established banks rely on habit & inertia, gambling that the hassle of moving your money to a new bank is just too great.
But habits can be broken, especially in today’s extraordinary circumstances.
Just asking clients what they want won’t work, either
Some may be tempted to flip too far the other way, and spend months in extensive focus groups to compile lists of user requests.
But client-centricity also isn’t simply asking customers what they want so you can build it for them.
Customer-led vs. Customer-centric
Slavishly doing whatever customers ask for has been tried multiple times to fairly disastrous effect.
There’s with no better example of a customer focus gone wrong than the Edsel, completely designed by committee in consumer focus groups, and which is estimated to have lost the Ford Motor company $350 million (some $3.5 billion in today’s value).
But that doesn’t mean you don’t talk to clients.
It just means you use their feedback as one input to make a better set of strategic choices, and use effective, experienced product management to bring them to life.
The Edsel, and other consumer failures, are examples of companies being customer-led.
Customer-centricity is something entirely different, based on working backwards from a compelling customer need, want, or desire.
Making this the focal point of a client-centric, higher-level organizational strategy can’t be overemphasized.
We need look no further than Amazon Leadership Principle
#1: Customer Obsession:
“Leaders start with the customer and work backwards.”
Perhaps this customer obsession, paired with their deep understanding of strategy and product management, has always been Amazon’s “unfair advantage.” Amazon’s customer focus has extended even to a willingness to disrupt their own core online bookselling business to deliver a radically new and better reading experience — the Kindle.
But neither Amazon, nor any of the other perennially great customer-centric brands have made the mistake to try to be everyone’s preferred brand.
You first have to know who’s most likely to buy from you– Where to Play.
#3. Because it’s the only way to effectively serve the needs of your best customers
Many organizations that try to be customer-centric fall into the trap of attempting to cast as wide a net as possible with their strategy, hoping to get anyone and everyone to become a customer.
Even if you’re tempted, and see potential easy money in the short term, don’t do it!
The prohibitive costs of chasing the wrong customer
Rahul Vohra beautifully sums up the impact of trying to appeal to the wrong users:
“[these]…users should not impact your product strategy in any way. They’ll request distracting features, present ill-fitting use cases and probably be very vocal, all before they churn out and leave you with a mangled, muddled roadmap. As surprising or painful as it may seem, don’t act on their feedback — it will lead you astray…”
Rahul Vohra, How Superhuman Built an Engine to Find Product Market Fit
Customers who aren’t a good fit for your brand will cost you exponentially more in every possible way, resulting in
- Higher service and support costs
- Potentially changing your product to satisfy one-off needs
- Fickle, unpredictable feedback that damages employee morale
- Technical debt limiting your ability to innovate or make any changes
- Having to live with a multitude of short-term solutions to chase “easy” money
Success can only come from understanding who already is a good fit for your company.
And only one other group.
Only focus on your biggest fans. And those who could be.
As you evolve your client-centric strategy, your goal will be to focus on understanding and addressing the needs of only two groups of users:
- Your brand’s biggest fans
- Users who are close to loving your brand
Continuously working to answer two questions:
- How do you continue to serve your best customers in new & differentiated ways?
- For those users close to being fans, what can you do to turn them into raving fans?
This second group represents the natural areas of strategic growth for your product, and will lead you to refine your strategy and determine new features and services to offer that will both fulfill their needs, as well as work for your business.
It’s always about connecting with your specific set of (“Where to Play”) users, and giving them a compelling, differentiated experience (“How to Win”).
Installing the right feedback loops
Your goal, then, will be to establish regular Quantitative (surveys, usage data) as well as Qualitative (continuous customer interviewing) feedback loops to these two groups to continuously inform your strategy and success metrics.
(You can read more about these approaches to product strategy here and here.)
Competing at the Right Place
But what about the competition? Shouldn’t we focus on them?
Yes, the competition should factor into your strategy, but not in the ways you might think.
While military metaphors and approaches to business strategy focus purely on “outmaneuvering” the competition, there’s another approach that’s proven successful.
Putting the competition in context
Hiten Shah, CEO at Nira and rare serial successful startup entrepreneur, had this to say about studying the competition:
“We don’t conduct competitive research because we care about competitors, we do it because we care about how customers feel about competitors.”
Hiten Shah via Dottie Schrock, The past, present, and future of FYI: How Hiten Shah turned an obsession with customers into Product Excellence
Study competition, but never let them distract you from starting from a customer-centric strategy.
Competing to Win
In Roger L. Martin’s “Playing to Win” strategy framework, competition does indeed play a role as we test the viability of a set of potential strategic choices.
At Step 4 in the Strategy Process Map, we ask “the most valuable question in strategy,” “What would have to be true?”
We think deeply about “What would have to be true?” in regards to our competition in two main ways:
- What would have to be true about other companies that currently compete in the same space, and how they might potentially respond in the face of your strategy?
- What would have to be true about new competitors that might appear at some point down the road?
In this way, we can think through the possibilities of how likely our strategy might be to get disrupted on entering a new market or extending our offerings through a new channel.
TL:dr;
Is your strategy delivering the results you hope?
If not, refocus on understanding your customers, and make sure any strategic choices you make start from how they define success from their perspective.
Remember to design your strategy working backwards from client needs…
- Because you can only optimize for one thing at a time
- Because you can’t make your clients do what you want them to do
- Because it’s the only way to effectively serve the right customers
By understanding these three things, you too can design a client-centric, winning strategy.
Follow me for more on Strategy, Goal-setting, and Product Management, dig into my articles on the “Playing to Win” Strategy Framework, and sign up for my Upstream, Full-Stack newsletter.
References
The Age of Customer Capitalism
Idea in Brief The big idea: It’s time to discard the popular belief that corporations must focus first and foremost on…hbr.org
Martin, Roger L. “A New Way to Think”
Lafley, A.G.; Martin, Roger L.; “Playing to Win” Harvard Business Review Press. Kindle Edition.
Dottie Schrock — The past, present, and future of FYI: How Hiten Shah turned an obsession with customers into Product Excellence
Rahul Vohra, How Superhuman Built an Engine to Find Product Market Fit
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