Do you truly understand your portfolio companies’ customer? Go find out.
Today, SaaS companies report having nine competitors on average, up from only two back in 2013. Netflix, the SaaS company that you, two of your cousins and your ex split $5 a month for to watch re-runs of The Office, has at least 10 formidable competitors.
The winning companies in their respective industries are the ones that best understand the core reason a customer is choosing their product. Netflix’s post-play feature and “skip intro” button have made binge-watching even easier, allowing you to keep those hands in a bag of chips while scrolling through Instagram.
Most companies have an attractive solution to a real problem. Take Lunchables. You’re hungry (problem), and you want to eat something that makes you question the FDA’s approval process (solution).
What you really want to know are the details of the customer's anxiety towards the Company’s new solution.
Does the Company have an install process like Verizon's? There has to be a better way to get set up on their system than to have an overweight, tech-challenged 50-year old man, who thinks that belts are just an overrated fashion trend come to your house.
I encourage you and your portfolio companies to sit down with three customers, and some customers that churned, and dig into what they think the main value proposition of the Company is and what else they hope the Company would offer them.
Here are a few questions you should bring up to sound smart.
What did the customer have to change or give up in order to choose the Company’s service? Is there anything about their current business practices that made it difficult for them to do so? What made you to choose this Company’s service? What is their main value driver to your business?
This exercise can help you analyze how effective the Company’s sales process is. It could help you better retain customers. It could lead to pricing strategy discussions, like when Starbucks increased the price of their (read in condescending tone) tall non-fat decaf mocha soy latte Frappuccino by 10%, and it actually led to a 25% increase in net income.
Encourage your portfolio companies to get out there and get to know their customer. It’s always good to check in with the people who are buying their product. It is bound to be more fruitful than your Thanksgiving check-ins with Aunt Carol who is always trying to set you up with her friend's son, who she swears is a "really nice guy once you get to know him".
I am a 25 year-old venture capitalist and amateur stand-up comedian living in NYC.