Category: Consumer

Money Out of Nowhere: How Internet Marketplaces Unlock Economic Wealth – Bill Gurley

In 1776, Adam Smith released his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nationsin which he outlined his fundamental economic theories. Front and center in the book — in fact in Book 1, Chapter 1 — is his realization of the productivity improvements made possible through the “Division of Labour”:

It is the great multiplication of the production of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people. Every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for; and every other workman being exactly in the same situation, he is enabled to exchange a great quantity of his own goods for a great quantity, or, what comes to the same thing, for the price of a great quantity of theirs. He supplies them abundantly with what they have occasion for, and they accommodate him as amply with what he has occasion for, and a general plenty diffuses itself through all the different ranks of society.

Smith identified that when men and women specialize their skills, and also importantly “trade” with one another, the end result is a rise in productivity and standard of living for everyone. In 1817, David Ricardo published On the Principles of Political Economy and Taxation where he expanded upon Smith’s work in developing the theory of Comparative Advantage. What Ricardo proved mathematically, is that if one country has simply a comparative advantage (not even an absolute one), it still is in everyone’s best interest to embrace specialization and free trade. In the end, everyone ends up in a better place.

There are two key requirements for these mechanisms to take force. First and foremost, you need free and open trade. It is quite bizarre to see modern day politicians throw caution to the wind and ignore these fundamental tenants of economic science. Time and time again, the fact patterns show that when countries open borders and freely trade, the end result is increased economic prosperity. The second, and less discussed, requirement is for the two parties that should trade to be aware of one another’s goods or services. Unfortunately, either information asymmetry or physical distances and the resulting distribution costs can both cut against the economic advantages that would otherwise arise for all.

Fortunately, the rise of the Internet, and specifically Internet marketplace models, act as accelerants to the productivity benefits of the division of labour AND comparative advantage by reducing information asymmetry and increasing the likelihood of a perfect match with regard to the exchange of goods or services. In his 2005 book, The World Is Flat, Thomas Friedman recognizes that the Internet has the ability to create a “level playing field” for all participants, and one where geographic distances become less relevant. The core reason that Internet marketplaces are so powerful is because in connecting economic traders that would otherwise not be connected, they unlock economic wealth that otherwise would not exist. In other words, they literally create “money out of nowhere.”

EXCHANGE OF GOODS MARKETPLACES

Any discussion of Internet marketplaces begins with the first quintessential marketplace, ebay(*). Pierre Omidyarfounded AuctionWeb in September of 1995, and its rise to fame is legendary. What started as a web site to trade laser pointers and Beanie Babies (the Pez dispenser start is quite literally a legend), today enables transactions of approximately $100B per year. Over its twenty-plus year lifetime, just over one trillion dollars in goods have traded hands across eBay’s servers. These transactions, and the profits realized by the sellers, were truly “unlocked” by eBay’s matching and auction services.

In 1999, Jack Ma created Alibaba, a Chinese-based B2B marketplace for connecting small and medium enterprise with potential export opportunities. Four years later, in May of 2003, they launched Taobao Marketplace, Alibaba’s answer to eBay. By aggressively launching a free to use service, Alibaba’s Taobao quickly became the leading person-to-person trading site in China. In 2018, Taobao GMV (Gross Merchandise Value) was a staggering RMB2,689 billion, which equates to $428 billion in US dollars.

There have been many other successful goods marketplaces that have launched post eBay & Taobao — all providing a similar service of matching those who own or produce goods with a distributed set of buyers who are particularly interested in what they have to offer. In many cases, a deeper focus on a particular category or vertical allows these marketplaces to distinguish themselves from broader marketplaces like eBay.

  • In 2000, Eric Baker and Jeff Fluhr founded StubHub, a secondary ticket exchange marketplace. The company was acquired by ebay in January 2007. In its most recent quarter, StubHub’s GMV reached $1.4B, and for the entire year 2018, StubHub had GMV of $4.8B.
  • Launched in 2005, Etsy is a leading marketplaces for the exchange of vintage and handmade items. In its most recent quarter, the company processed the exchange of $923 million of sales, which equates to a $3.6B annual GMV.
  • Founded by Michael Bruno in Paris in 2001, 1stdibs(*) is the world’s largest online marketplace for luxury one-of-a-kind antiques, high-end modern furniture, vintage fashion, jewelry, and fine art. In November 2011, David Rosenblatt took over as CEO and has been scaling the company ever since. Over the past few years dealers, galleries, and makers have matched billions of dollars in merchandise to trade buyers and consumer buyers on the platform.
  • Poshmark was founded by Manish Chandra in 2011. The website, which is an exchange for new and used clothing, has been remarkably successful. Over 4 million sellers have earned over $1 billion transacting on the site.
  • Julie Wainwright founded The Real Real in 2011. The company is an online marketplace for authenticated luxury consignment. In 2017, the company reported sales of over $500 million.
  • In 2015, Eddy Lu and Daishin Sugano launched GOAT, a marketplace for the exchange of sneakers. Despite this narrow focus, the company has been remarkably successful. The estimated annual GMV of GOAT and its leading competitor Stock X is already over $1B per year (on a combined basis).

SHARING ECONOMY MARKETPLACES

With the launch of Airbnb in 2008 and Uber(*) in 2009, these two companies established a new category of marketplaces known as the “sharing economy.” Homes and automobiles are the two most expensive items that people own, and in many cases the ability to own the asset is made possible through debt — mortgages on houses and car loans or leases for automobiles. Despite this financial exposure, for many people these assets are materially underutilized. Many extra rooms and second homes are vacant most of the year, and the average car is used less than 5% of the time. Sharing economy marketplaces allow owners to “unlock” earning opportunities from these underutilized assets.

Airbnb was founded by Joe Gebbia and Brian Chesky in 2008. Today there are over 5 million Airbnb listings in 81,000 cities. Over two million people stay in an Airbnb each night. In November of this year, the company announced that it had achieved “substantially” more than $1B in revenue in the third quarter. Assuming a marketplace rake of something like 11%, this would imply gross room revenue of over $9B for the quarter — which would be $36B annualized. As the company is still growing, we can easily guess that in 2019-2020 time frame, Airbnb will be delivering around $50B per year to home-owners who were previously sitting on highly underutilized assets. This is a major “unlocking.”

When Garrett Camp and Travis Kalanick founded Uber in 2009, they hatched the industry now known as ride-sharing. Today over 3 million people around the world use their time and their underutilized automobiles to generate extra income. Without the proper technology to match people who wanted a ride with people who could provide that service, taxi and chauffeur companies were drastically underserving the potential market. As an example, we estimate that ride-sharing revenues in San Francisco are well north of 10X what taxis and black cars were providing prior to the launch of ride-sharing. These numbers will go even higher as people increasingly forgo the notion of car ownership altogether. We estimate that the global GMV for ride sharing was over $100B in 2018 (including Uber, Didi, Grab, Lyft, Yandex, etc) and still growing handsomely. Assuming a 20% rake, this equates to over $80B that went into the hands of ride-sharing drivers in a single year — and this is an industry that did not exist 10 years ago. The matching made possible with today’s GPS and Internet-enabled smart phones is a massive unlocking of wealth and value.

While it is a lesser known category, using your own backyard and home to host dog guests as an alternative to a kennel is a large and growing business. Once again, this is an asset against which the marginal cost to host a dog is near zero. By combining their time with this otherwise unused asset, dog sitters are able to offer a service that is quite compelling for consumers. Rover.com (*) in Seattle, which was founded by Greg Gottesman and Aaron Easterly in 2011, is the leading player in this market. (Benchmark is an investor in Rover through a merger with DogVacay in 2017). You may be surprised to learn that this is already a massive industry. In less than a decade since the company started, Rover has already paid out of half a billion dollars to hosts that participate on the platform.

EXCHANGE OF LABOR MARKETPLACES

While not as well known as the goods exchanges or sharing economy marketplaces, there is a growing and exciting increase in the number of marketplaces that help match specifically skilled labor with key opportunities to monetize their skills. The most noteworthy of these is likely Upwork(*), a company that formed from the merger of Elance and Odesk. Upwork is a global freelancing platform where businesses and independent professionals can connect and collaborate remotely. Popular categories include web developers, mobile developers, designers, writers, and accountants. In the 12 months ended June 30, 2018, the Upwork platform enabled $1.56 billion of GSV (gross services revenue) across 2.0 million projects between approximately 375,000 freelancers and 475,000 clients in over 180 countries. These labor matches represent the exact “world is flat” reality outlined in Friedman’s book.

Other noteworthy and emerging labor marketplaces:

  • HackerOne(*) is the leading global marketplace that coordinates the world’s largest corporate “bug bounty” programs with a network of the world’s leading hackers. The company was founded in 2012 by Michiel PrinsJobert AbmaAlex Rice and Merijn Terheggen, and today serves the needs of over 1,000 corporate bug bounty programs. On top of that, the HackerOne network of over 300,000 hackers (adding 600 more each day) has resolved over 100K confirmed vulnerabilities which resulted in over $46 million in awards to these individuals. There is an obvious network effect at work when you bring together the world’s leading programs and the world’s leading hackers on a single platform. The Fortune 500 is quickly learning that having a bug bounty program is an essential step in fighting cyber crime, and that HackerOne is the best place to host their program.
  • Wyzant is a leading Chicago-based marketplace that connects tutors with students around the country. The company was founded by Andrew Geant and Mike Weishuhn in 2005. The company has over 80,000 tutors on its platform and has paid out over $300 million to these professionals. The company started matching students with tutors for in-person sessions, but increasingly these are done “virtually” over the Internet.
  • Stitch Fix (*) is a leading provider of personalized clothing services that was founded by Katrina Lake in 2011. While the company is not primarily a marketplace, each order is hand-curated by a work-at-home “stylist” who works part-time on their own schedule from the comfort of their own home. Stitch Fix’s algorithms match the perfect stylist with each and every customer to help ensure the optimal outcome for each client. As of the end of 2018, Stitch Fix has paid out well over $100 million to their stylists.
  • Swing Education was founded in 2015 with the objective of creating a marketplace for substitute teachers. While it is still early in the company’s journey, they have already established themselves as the leader in the U.S. market. Swing is now at over 1,200 school partners and has filled over 115,000 teacher absence days. They have helped 2,000 substitute teachers get in the classroom in 2018, including 400 educators who earned permits, which Swing willingly financed. While it seems obvious in retrospect, having all substitutes on a single platform creates massive efficiency in a market where previously every single school had to keep their own list and make last minute calls when they had vacancies. And their subs just have to deal with one Swing setup process to get access to subbing opportunities at dozens of local schools and districts.
  • RigUp was founded by Xuan Yong and Mike Witte in Austin, Texas in March of 2014. RigUp is a leading labor marketplace focused on the oilfield services industry. “The company’s platform offers a large network of qualified, insured and compliant contractors and service providers across all upstream, midstream and downstream operations in every oil and gas basin, enabling companies to hire quickly, track contractor compliance, and minimize administrative work.” According to the company, GMV for 2017 was an impressive $150 million, followed by an astounding $600 million in 2018. Often, investors miss out on vertically focused companies like RigUp as they find themselves overly anxious about TAM (total available market). As you can see, that can be a big mistake.
  • VIPKid, which was founded in 2013 by Cindy Mi, is a truly amazing story. The idea is simple and simultaneously brilliant. VIPKid links students in China who want to learn English with native English speaking tutors in the United States and Canada. All sessions are done over the Internet, once again epitomizing Friedman’s very flat world. In November of 2018, the company reported having 60,000 teachers contracted to teach over 500,000 students. Many people believe the company is now well north of a US$1B run rate, which implies that around $1B will pass hands from Chinese parents to western teachers in 2019. That is quite a bit of supplemental income for U.S.-based teachers.

These vertical labor marketplaces are to LinkedIn what companies like Zillow, Expedia, and GrubHub are to Google search. Through a deeper understanding of a particular vertical, a much richer perspective on the quality and differentiation of the participants, and the enablement of transactions — you create an evolved service that has much more value to both sides of the transaction. And for those professionals participating in these markets, your reputation on the vertical service matters way more than your profile on LinkedIn.

NEW EMERGING MARKETPLACES

Having been a fortunate investor in many of the previously mentioned companies (*), Benchmark remains extremely excited about future marketplace opportunities that will unlock wealth on the Internet. Here are an example of two such companies that we have funded in the past few years.

The New York Times describes Hipcamp as “The Sharing Economy Visits the Backcountry.” Hipcamp(*) was founded in 2013 by Alyssa Ravasio as an engine to search across the dozens and dozens of State and National park websites for campsite availability. As Hipcamp gained traction with campers, landowners with land near many of the National and State parks started to reach out to Hipcamp asking if they could list their land on Hipcamp too. Hipcamp now offers access to more than 350k campsites across public and private land, and their most active private land hosts make over $100,000 per year hosting campers. This is a pretty amazing value proposition for both land owners and campers. If you are a rural landowner, here is a way to create “money out of nowhere” with very little capital expenditures. And if you are a camper, what could be better than to camp at a unique, bespoke campsite in your favorite location.

Instawork(*) is an on-demand staffing app for gig workers (professionals) and hospitality businesses (partners). These working professionals seek economic freedom and a better life, and Instawork gives them both — an opportunity to work as much as they like, but on their own terms with regard to when and where. On the business partner side, small business owners/managers/chefs do not have access to reliable sources to help them with talent sourcing and high turnover, and products like  LinkedIn are more focused on white-collar workers. Instawork was cofounded by Sumir Meghani in San Franciso and was a member of the 2015 Y-Combinator class. 2018 was a break-out year for Instawork with 10X revenue growth and 12X growth in Professionals on the platform. The average Instawork Professional is highly engaged on the platform, and typically opens the Instawork app ten times a day. This results in 97% of gigs being matched in less than 24 hours — which is powerfully important to both sides of the network. Also noteworthy, the Professionals on Instawork average 150% of minimum wage, significantly higher than many other labor marketplaces. This higher income allows Instawork Professionals like Jose, to begin to accomplish their dreams.

THE POWER OF THESE PLATFORMS

As you can see, these numerous marketplaces are a direct extension of the productivity enhancers first uncovered by Adam Smith and David Ricardo. Free trade, specialization, and comparative advantage are all enhanced when we can increase the matching of supply and demand of goods and services as well as eliminate inefficiency and waste caused by misinformation or distance. As a result, productivity naturally improves.

Specific benefits of global internet marketplaces:

    1. Increase wealth distribution (all examples)
    2. Unlock wasted potential of assets (Uber, AirBNB, Rover, and Hipcamp)
    3. Better match of specific workers with specific opportunities (Upwork, WyzAnt, RigUp, VIPKid, Instawork)
    4. Make specific assets reachable and findable (Ebay, Etsy, 1stDibs, Poshmark, GOAT)
    5. Allow for increased specialization (Etsy, Upwork, RigUp)
    6. Enhance supplemental labor opportunities (Uber, Stitch Fix, SwingEducation, Instawork, VIPKid), where the worker is in control of when and where they work
    7. Reduces forfeiture by enhancing utilization (mortgages, car loans, etc) (Uber, AirBnb, Rover, Hipcamp)

Source : http://abovethecrowd.com/2019/02/27/money-out-of-nowhere-how-internet-marketplaces-unlock-economic-wealth/

Digital Transformation of Business and Society: Challenges and Opportunities by 2020 – Frank Diana

At a recent KPMG Robotic Innovations event, Futurist and friend Gerd Leonhard delivered a keynote titled “The Digital Transformation of Business and Society: Challenges and Opportunities by 2020”. I highly recommend viewing the Video of his presentation. As Gerd describes, he is a Futurist focused on foresight and observations — not predicting the future. We are at a point in history where every company needs a Gerd Leonhard. For many of the reasons presented in the video, future thinking is rapidly growing in importance. As Gerd so rightly points out, we are still vastly under-estimating the sheer velocity of change.

With regard to future thinking, Gerd used my future scenario slide to describe both the exponential and combinatorial nature of future scenarios — not only do we need to think exponentially, but we also need to think in a combinatorial manner. Gerd mentioned Tesla as a company that really knows how to do this.

Our Emerging Future

He then described our current pivot point of exponential change: a point in history where humanity will change more in the next twenty years than in the previous 300. With that as a backdrop, he encouraged the audience to look five years into the future and spend 3 to 5% of their time focused on foresight. He quoted Peter Drucker (“In times of change the greatest danger is to act with yesterday’s logic”) and stated that leaders must shift from a focus on what is, to a focus on what could be. Gerd added that “wait and see” means “wait and die” (love that by the way). He urged leaders to focus on 2020 and build a plan to participate in that future, emphasizing the question is no longer what-if, but what-when. We are entering an era where the impossible is doable, and the headline for that era is: exponential, convergent, combinatorial, and inter-dependent — words that should be a key part of the leadership lexicon going forward. Here are some snapshots from his presentation:

  • Because of exponential progression, it is difficult to imagine the world in 5 years, and although the industrial era was impactful, it will not compare to what lies ahead. The danger of vastly under-estimating the sheer velocity of change is real. For example, in just three months, the projection for the number of autonomous vehicles sold in 2035 went from 100 million to 1.5 billion
  • Six years ago Gerd advised a German auto company about the driverless car and the implications of a sharing economy — and they laughed. Think of what’s happened in just six years — can’t imagine anyone is laughing now. He witnessed something similar as a veteran of the music business where he tried to guide the industry through digital disruption; an industry that shifted from selling $20 CDs to making a fraction of a penny per play. Gerd’s experience in the music business is a lesson we should learn from: you can’t stop people who see value from extracting that value. Protectionist behavior did not work, as the industry lost 71% of their revenue in 12 years. Streaming music will be huge, but the winners are not traditional players. The winners are Spotify, Apple, Facebook, Google, etc. This scenario likely plays out across every industry, as new businesses are emerging, but traditional companies are not running them. Gerd stressed that we can’t let this happen across these other industries
  • Anything that can be automated will be automated: truck drivers and pilots go away, as robots don’t need unions. There is just too much to be gained not to automate. For example, 60% of the cost in the system could be eliminated by interconnecting logistics, possibly realized via a Logistics Internet as described by economist Jeremy Rifkin. But the drive towards automation will have unintended consequences and some science fiction scenarios could play out. Humanity and technology are indeed intertwining, but technology does not have ethics. A self-driving car would need ethics, as we make difficult decisions while driving all the time. How does a car decide to hit a frog versus swerving and hitting a mother and her child? Speaking of science fiction scenarios, Gerd predicts that when these things come together, humans and machines will have converged:
  • Gerd has been using the term “Hellven” to represent the two paths technology can take. Is it 90% heaven and 10% hell (unintended consequences), or can this equation flip? He asks the question: Where are we trying to go with this? He used the real example of Drones used to benefit society (heaven), but people buying guns to shoot them down (hell). As we pursue exponential technologies, we must do it in a way that avoids negative consequences. Will we allow humanity to move down a path where by 2030, we will all be human-machine hybrids? Will hacking drive chaos, as hackers gain control of a vehicle? A recent Jeep recall of 1.4 million jeeps underscores the possibility. A world of super intelligence requires super humanity — technology does not have ethics, but society depends on it. Is this Ray Kurzweil vision what we want?
  • Is society truly ready for human-machine hybrids, or even advancements like the driverless car that may be closer to realization? Gerd used a very effective Video to make the point
  • Followers of my Blog know I’m a big believer in the coming shift to value ecosystems. Gerd described this as a move away from Egosystems, where large companies are running large things, to interdependent Ecosystems. I’ve talked about the blurring of industry boundaries and the movement towards ecosystems. We may ultimately move away from the industry construct and end up with a handful of ecosystems like: mobility, shelter, resources, wellness, growth, money, maker, and comfort
  • Our kids will live to 90 or 100 as the default. We are gaining 8 hours of longevity per day — one third of a year per year. Genetic engineering is likely to eradicate disease, impacting longevity and global population. DNA editing is becoming a real possibility in the next 10 years, and at least 50 Silicon Valley companies are focused on ending aging and eliminating death. One such company is Human Longevity Inc., which was co-founded by Peter Diamandis of Singularity University. Gerd used a quote from Peter to help the audience understand the motivation: “Today there are six to seven trillion dollars a year spent on healthcare, half of which goes to people over the age of 65. In addition, people over the age of 65 hold something on the order of $60 trillion in wealth. And the question is what would people pay for an extra 10, 20, 30, 40 years of healthy life. It’s a huge opportunity”
  • Gerd described the growing need to focus on the right side of our brain. He believes that algorithms can only go so far. Our right brain characteristics cannot be replicated by an algorithm, making a human-algorithm combination — or humarithm as Gerd calls it — a better path. The right brain characteristics that grow in importance and drive future hiring profiles are:
  • Google is on the way to becoming the global operating system — an Artificial Intelligence enterprise. In the future, you won’t search, because as a digital assistant, Google will already know what you want. Gerd quotes Ray Kurzweil in saying that by 2027, the capacity of one computer will equal that of the human brain — at which point we shift from an artificial narrow intelligence, to an artificial general intelligence. In thinking about AI, Gerd flips the paradigm to IA or intelligent Assistant. For example, Schwab already has an intelligent portfolio. He indicated that every bank is investing in intelligent portfolios that deal with simple investments that robots can handle. This leads to a 50% replacement of financial advisors by robots and AI
  • This intelligent assistant race has just begun, as Siri, Google Now, Facebook MoneyPenny, and Amazon Echo vie for intelligent assistant positioning. Intelligent assistants could eliminate the need for actual assistants in five years, and creep into countless scenarios over time. Police departments are already capable of determining who is likely to commit a crime in the next month, and there are examples of police taking preventative measures. Augmentation adds another dimension, as an officer wearing glasses can identify you upon seeing you and have your records displayed in front of them. There are over 100 companies focused on augmentation, and a number of intelligent assistant examples surrounding IBM Watson; the most discussed being the effectiveness of doctor assistance. An intelligent assistant is the likely first role in the autonomous vehicle transition, as cars step in to provide a number of valuable services without completely taking over. There are countless Examples emerging
  • Gerd took two polls during his keynote. Here is the first: how do you feel about the rise of intelligent digital assistants? Answers 1 and 2 below received the lion share of the votes
  • Collectively, automation, robotics, intelligent assistants, and artificial intelligence will reframe business, commerce, culture, and society. This is perhaps the key take away from a discussion like this. We are at an inflection point where reframing begins to drive real structural change. How many leaders are ready for true structural change?
  • Gerd likes to refer to the 7-ations: Digitization, De-Materialization, Automation, Virtualization, Optimization, Augmentation, and Robotization. Consequences of the exponential and combinatorial growth of these seven include dependency, job displacement, and abundance. Whereas these seven are tools for dramatic cost reduction, they also lead to abundance. Examples are everywhere, from the 16 million songs available through Spotify, to the 3D printed cars that require only 50 parts. As supply exceeds demand in category after category, we reach abundance. As Gerd put it, in five years’ time, genome sequencing will be cheaper than flushing the toilet and abundant energy will be available by 2035 (2015 will be the first year that a major oil company will leave the oil business to enter the abundance of the renewable business). Other things to consider regarding abundance:
  • Efficiency and business improvement is a path not a destination. Gerd estimates that total efficiency will be reached in 5 to 10 years, creating value through productivity gains along the way. However, after total efficiency is met, value comes from purpose. Purpose-driven companies have an aspirational purpose that aims to transform the planet; referred to as a massive transformative purpose in a recent book on exponential organizations. When you consider the value that the millennial generation places on purpose, it is clear that successful organizations must excel at both technology and humanity. If we allow technology to trump humanity, business would have no purpose
  • In the first phase, the value lies in the automation itself (productivity, cost savings). In the second phase, the value lies in those things that cannot be automated. Anything that is human about your company cannot be automated: purpose, design, and brand become more powerful. Companies must invent new things that are only possible because of automation
  • Technological unemployment is real this time — and exponential. Gerd talked to a recent study by the Economist that describes how robotics and artificial intelligence will increasingly be used in place of humans to perform repetitive tasks. On the other side of the spectrum is a demand for better customer service and greater skills in innovation driven by globalization and falling barriers to market entry. Therefore, creativity and social intelligence will become crucial differentiators for many businesses; jobs will increasingly demand skills in creative problem-solving and constructive interaction with others
  • Gerd described a basic income guarantee that may be necessary if some of these unemployment scenarios play out. Something like this is already on the ballot in Switzerland, and it is not the first time this has been talked about:
  • In the world of automation, experience becomes extremely valuable — and you can’t, nor should attempt to — automate experiences. We clearly see an intense focus on customer experience, and we had a great discussion on the topic on an August 26th Game Changers broadcast. Innovation is critical to both the service economy and experience economy. Gerd used a visual to describe the progression of economic value:
Source: B. Joseph Pine II and James Gilmore: The Experience Economy
  • Gerd used a second poll to sense how people would feel about humans becoming artificially intelligent. Here again, the audience leaned towards the first two possible answers:

Gerd then summarized the session as follows:

The future is exponential, combinatorial, and interdependent: the sooner we can adjust our thinking (lateral) the better we will be at designing our future.

My take: Gerd hits on a key point. Leaders must think differently. There is very little in a leader’s collective experience that can guide them through the type of change ahead — it requires us all to think differently

When looking at AI, consider trying IA first (intelligent assistance / augmentation).

My take: These considerations allow us to create the future in a way that avoids unintended consequences. Technology as a supplement, not a replacement

Efficiency and cost reduction based on automation, AI/IA and Robotization are good stories but not the final destination: we need to go beyond the 7-ations and inevitable abundance to create new value that cannot be easily automated.

My take: Future thinking is critical for us to be effective here. We have to have a sense as to where all of this is heading, if we are to effectively create new sources of value

We won’t just need better algorithms — we also need stronger humarithms i.e. values, ethics, standards, principles and social contracts.

My take: Gerd is an evangelist for creating our future in a way that avoids hellish outcomes — and kudos to him for being that voice

“The best way to predict the future is to create it” (Alan Kay).

My Take: our context when we think about the future puts it years away, and that is just not the case anymore. What we think will take ten years is likely to happen in two. We can’t create the future if we don’t focus on it through an exponential lens

Source : https://medium.com/@frankdiana/digital-transformation-of-business-and-society-5d9286e39dbf

Data-driven transformation of the life sciences industry – RockHealth

Digital health innovation continues moving full-force in transforming the business of healthcare. For pharma and medtech companies in particular, this ongoing shift has pushed them to identify ways to create value for patients beyond the drugs themselves. From new partnerships between digital health and life science companies to revamped commercial models, collecting and extracting insights from data is at the core of these growth opportunities. But navigating the rapidly evolving terrain is no simple task.

To help these companies effectively incorporate and utilize digital health tools, Rock Health partner ZS Associates draws on over 30 years of industry expertise to guide them through the complex digital health landscape. We chatted with Principal Pete Masloski to discuss how he works with clients to help identify, develop, and commercialize digital health solutions within their core businesses—and where he sees patients benefiting the most as a result.

Note: This interview has been lightly edited for clarity.

Where does ZS see the promise of data- and analytics-enabled digital health tools leading to in the next five years, 10 years, and beyond?

Data and analytics will play a central role in the digital health industry’s growth over the next five to ten years. Startups are able to capture larger, novel sets of data in a way that large life science companies historically have not been able to. As a result, consumers will be better informed about their health choices; physicians will have more visibility into what treatment options work best for whom under what circumstances; health plans will have a better understanding of treatment choices; and pharmaceutical and medical device companies will be able to strategically determine which products and services to build.

We see personalized medicine, driven by genomics and targeted therapies, rapidly expanding over the next few years. Pharmaceutical discovery and development will also transition to become more digitally enabled. The ability to match patients with clinical trials and improve the patient experience will result in lower costs, faster completion, and more targeted therapies. The increase in real-world evidence will be used to demonstrate the efficacy of therapeutics and devices in different populations, which assures payers and providers that outcomes from studies can be replicated in the real world.

How is digital health helping life sciences companies innovate their commercial models? What is the role of data and analytics in these new models?

The pharmaceutical industry continues to face a number of challenges, including the increasingly competitive markets, growing biosimilar competition, and overall scrutiny on pricing. We’ve seen excitement around solutions that integrate drugs with meaningful outcomes and solutions that address gaps in care delivery and promote medication adherence.

Solving these problems creates new business model opportunities for the industry through fresh revenue sources and ways of structuring agreements with customers. For example, risk-based contracts with health plans, employers, or integrated delivery networks (IDNs) become more feasible when you can demonstrate increased likelihood of better outcomes for more patients. We see this coming to fruition when pharma companies integrate comprehensive digital adherence solutions focused on patient behavior change around a specific drug, as in Healthprize’s partnership with Boehringer Ingelheim. In medtech, digital health tools can both differentiate core products and create new profitable software or services businesses. Integrating data collection technology and connectivity into devices and adding software-enabled services can support a move from traditional equipment sales to pay-per-use. This allows customers to access the new equipment technology without paying a large sum up front—and ensures manufacturers will have a more predictable ongoing source of revenue.

That said, data and analytics remain at the core of these new models. In some cases, such as remote monitoring, the data itself is the heart of the solution; in others, the data collected helps establish effectiveness and value as a baseline for measuring impact. Digital ambulatory blood pressure monitors capture an individual’s complete blood pressure profile throughout the day, which provides a previously unavailable and reliable “baseline.” Because in-office only readings may be skewed by “white coat hypertension,” or stress-induced blood pressure readings, having a more comprehensive look at this data can lead to deeper understandings of user behaviors or conditions. Continuous blood pressure readings can help with diagnoses of stress-related drivers of blood pressure spikes, for example. These insights become the catalyst for life science companies’ new product offerings and go-to-market strategies.

What are some examples of how data sets gathered from partnerships with digital health companies can be leveraged to uncover new value for patients and address their unmet needs?

As digital health companies achieve a certain degree of scale, their expansive data sets become more valuable because of the insights that can be harnessed to improve outcomes and business decisions. Companies like 23andMe, for example, have focused on leveraging their data for research into targeted therapies. Flatiron Health is another great example of a startup that created a foundational platform (EMR) whose clinical data from diverse sources (e.g., laboratories, research repositories, and payer networks) became so highly valued in cancer therapy development that Roche acquired it earlier this year for close to $2B.

It’s exciting to think about the wide array of digital health solutions and the actionable insight that can be gleaned from them. One reason partnerships are important for the industry is few innovators who are collecting data have the capabilities and resources to fully capitalize on its use on their own. Pharma companies and startups must work together to achieve all of this at scale. Earlier this year, Fitbit announced a new partnership with Google to make the data collected from its devices available to doctors. Google’s API can directly link heart rate and fitness activity to the EMR, allowing doctors to easily review and analyze larger amounts of data. This increase in visibility provides physicians with more insight into how patients are doing in between visits, and therefore can also help with decision pathways.

Another example announced earlier this year is a partnership between Evidation Health and Tidepool, who are conducting a new research study, called the T1D Sleep Pilot, to study real-world data from Type 1 diabetics. With Evidation’s data platform and Tidepool’s device-agnostic consumer software, the goal is to better understand the dynamics of sleep and diabetes by studying data from glucose monitors, insulin pumps, and sleep and activity trackers. The data collected from sleep and activity trackers in particular allows us to better understand possible correlations between specific chronic conditions, like diabetes, and the impact of sleep—which in the past has been challenging to monitor. These additional insights provide a more comprehensive understanding of a patient’s condition and can lead to changes in treatment decisions—and ultimately, better outcomes.

How do you assess the quality and reliability of the data generated by digital health companies? What standards are you measuring them against?

Data quality management (DQM) is the way in which leading companies evaluate the quality and reliability of data sources. ISO 9000’s definition of quality is “the degree to which a set of inherent characteristics fulfills requirements.” At ZS, we have a very robust DQM methodology, and our definition goes beyond the basics to include both the accuracy and the value of the data. Factors such as accuracy and absence of errors, and fulfilling specifications (business rules, designs, etc.), are foundational, but in our experience it’s most important to also include an assessment of value, completeness, and lack of bias because often these factors can lead to misleading or inaccurate insights from analysis of that data.

However, it’s not easy assessing the value of a new data source, which presents an entirely different set of challenges. One very important one is the actual interpretation of the data that’s being collected. How do you know when someone is shaking their phone or Fitbit to inflate their steps, or how do you interpret that the device has been taken off and it’s not tracking activity? How do you account for that and go beyond the data to understand what is really happening? As we get more experience with IOT devices and algorithms get smarter, we will get better at interpreting what these devices are collecting and be more forgiving of underlying data quality.

What are the ethical implications or issues (such as data ownership, privacy, and bias) you’ve encountered thus far, or anticipate encountering in the near future?

The ethical stewardship and protection of personal health data are just as essential for the long-term sustainability of the digital health industry as the data itself. The key question is, how can the industry realize the full value from this data without crossing the line? Protecting personal data in an increasingly digitized world—where we’ve largely become apathetic to the ubiquitous “terms and conditions” agreements—is a non-negotiable. How digital health and life science companies collect, manage, and protect users’ information will remain a big concern.

There are also ethical issues around what the data that is captured is used for. Companies need to carefully establish how to appropriately leverage the data without crossing the line. For example, using de-identified data for research purposes with the goal of improving products or services is aligned with creating a better experience for the patient, as opposed to leveraging the data for targeted marketing purposes.

Companies also face the issue of potential biases that may emerge when introducing AI and machine learning into decision-making processes around treatment or access to care. Statistical models are only as good as the data that are used to train them. Companies introducing these models need to test datasets and their AI model outputs to ensure gaps are eliminated from training data, the algorithms don’t learn to introduce bias, and they establish a process for evaluating bias as the models continue to learn and evolve.

Source : https://rockhealth.com/the-data-driven-transformation-of-the-life-sciences-industry-a-qa-with-zs-associates-pete-masloski/

How redesigning an enterprise product taught me to extend myself – Instacart

As designers, we want to work on problems that are intriguing and “game-changing”. All too often, we limit the “game-changing” category to a handful of consumer-facing mobile apps and social networks. The truth is: enterprise software gives designers a unique set of complex problems to solve. Enterprise platforms usually have a savvy set of users with very specific needs — needs that, when addressed, often affect a business’s bottom line.

One of my first projects as a product designer here at Instacart was to redesign elements of our inventory management tool for retailers (e.g. Kroger, Publix, Safeway, Costco, etc.). As I worked on the project more and more, I learned that Enterprise tools are full of gnarly complexity and often present opportunities to practice deep thought. As Jonathan, one of our current enterprise platform designers said —

The greater the complexity, the greater the opportunity to find elegance.

New login screen

As we scoped the project we found that the existing product wasn’t enabling retailers to manage their inventories as concisely and efficiently as they could. We found retailer users were relying on customer support to help carry out smaller tasks. Our goal with the redesign was to build and deliver a better experience that would enable retailers to manage their inventory more easily and grow their business with Instacart.

The first step in redesigning was to understand the flow of the current product. We mapped out the journey of a partner going through the tool and spoke with the PMs to figure out what we could incorporate into the roadmap.

Overview of the older version of the retailer tool

Once we had a good understanding of the lay of the land, engineering resources, and retailers’ needs, we got into the weeds. Here are a few improvements we made to the tool —

Aisle and department management for Retailers

We used the department tiles feature from our customer-facing product as the catalog’s landing page (1.0 above). With this, we worked to:

  • Refine our visual style
  • Present retailers with an actionable page on the get-go
  • Make it quick and easy to add, delete, and modify items
New Departments page for the Partner Tool. Responsive tiles allow partners to view and edit their Aisles and Departments quickly.

Establishing Overall Hierarchy

Older item search page
Beverages > Coffee returns a list of coffees from the retailer’s catalog

Our solution simplified a few things:

  • A search bar rests atop the product to help find and add items without having to be on this specific page. It pops up a modal that offers a search and add experience. This was visually prioritized since it’s the most common action taken by retailers
  • Decoupled search flow and “Add new product” flow to streamline the workflows
  • Pagination, which was originally on the top and bottom, is now pinned to the bottom of the page for easy navigation
  • We also rethought the information hierarchy on this page. In the example below, the retailer is in the “Beverages” aisle under the “Coffee” item category, which is on the top left. They are editing or adding the item “Eight O’Clock Coffee,” which is the page title. This title is bigger to anchor the user on the page and improve navigation throughout the platform
Focused view of top bar. The “New Product” button is disabled since this is a view to add products

Achieving Clarity

While it’s great that the older Item Details page was partitioned into sections, from an IA perspective, it offered challenges for two reasons:

  1. The category grouping didn’t make sense to retailers
  2. Retailers had to read the information vertically but digest it horizontally and vertically
Older version of Item Details page

To address this, we broke down the sections into what’s truly necessary. From there, we identified four main categories of information that the data fell under:

  1. Images — This is first to encourage retailers to add product photos
  2. Basic Info — Name, brand, size, and unit
  3. Item description — Below the item description field, we offered the description seen on the original package (where the data was available) to help guide them as they wrote
  4. Product attributes — help better categorize the product (e.g. Kosher)

Sources now pop up on the top right of the input fields so the editor knows who last made changes.


Takeaways

Seeking validation through numbers is always fantastic. We did a small beta launch of this product and saw an increase in weekly engagement and decrease in support requests.

I learned that designing enterprise products helps you extend yourself as a visual designer and deep product thinker. I approached this project as an opportunity to break down complex interactions and bring visual elegance to a product through thoughtful design. To this day, it remains one of my favorite projects at Instacart as it stretched my thinking and enhanced my visual design chops. Most importantly, it taught me to look at Enterprise tools in a new light; now when I look at them, I am able to appreciate the complexity within

Source: https://tech.instacart.com/how-redesigning-an-enterprise-product-taught-me-to-extend-myself-8f83d72ebcdf

Augmented reality , the state of art in the industry- Miscible

Miscible.io attended The Augmented World Expo in Europe / Munich , October 2018, here is my report.

What a great #AWE2018 show in Munich, with a strong focus on the industry usage and, of course , the german automotive industry was well represented. Some new , simple but efficient, AR devices , and plenty of good use cases with a confirmed ROI. This edition was PRAGMATIC.

Here are my six take aways from this edition. Enjoy it !

1 – The return of investment of the AR solutions

The use of XR by automotive companies, big pharma, and teachers confirmed some good ROI with some “ready to use” solutions, especially in this domains :

2 – This is still the firstfruits of AR and some improvements are expected for drawbacks

  • Hardware : field of view, contrast/brigtness , 3D asset resolutions
  • Some AR headset are heavy to wear, it can have some consequences on the operator confort and security.
  • Accuracy between virtual and reality overlay / recognition
  • Automation process from Authoring software to build an end user solution.

3 – Challenge of the Authoring

To create specific and advanced AR Apps, there is still some challenges with the content authoring and with the integration to the legacy systems to retrieve master data and 3D assets. Automotized and integrated AR app need some ingenious developments.

An interesting use case from Boeing ( using hololens to assist the mounting of cables) shows how they did to get an integrated and automatized AR app. Their AR solution architecture in 4 blocks :

  • A web service to design the new AR app (UX and workflow)
  • A call to legacy systems to collect Master Data and 3D data / assets
  • Creation of an integrated Packaged data = asset bundle for the AR
  • Creation of the specific AR app (Vuforia / Unity) , to be transfered to the stand alone system, the Hololens glass.

4 – concept of 3D asset as a master data

The usage of AR and VR becomes more important in many domains : From conception to maintenance and sales (configurator, catalogs …)

The consequence is that original CAD files can be transformed and used in different processes of your company, where it becomes a challenge to use high polygon from CAD applications into other 3D / VR / AR applications, where there is a need of lighter 3D assets, also with some needs of texture and rendering adjustment.

gIFT can be a solution , glTF defines an extensible, common publishing format for 3D content tools and services that streamlines authoring workflows and enables interoperable use of content across the industry.

The main challenge is to implement a good centralised and integrated 3D asset management strategy, considering them as important as your other key master data.

5 – service company and expert to design advanced AR / VR solutions , integrated in the enterprise information system.

The conception of advanced and integrated AR solutions for large companies needs some new expert combining knowlegde in 3D apps and experience in system integration.

This projects need new types of information system architecture taking in account the AR technologies.

PTC looks like a leader in providing efficient and scalable tools for large companies. PTC, owner of Vuforia is also exceling with other 3D / PLM management solutions like windchill , to smoothly integrate 3D management in all the processes and IT of the enterprise.

Sopra Steria , the french IS integration company, is also taking this role , bringing his system integration experience into the new AR /VR usages in the industry.

If you don’t want to invest in this kind of complex projects, for a first step in AR/VR or for some quick wins at a low budget , new content authoring solutions exist to build your AR app with some simple user interfaces and workflows : skylight by Upskill , worklink by Scope AR

6 – The need for an open AR Cloud

“A real time 3D (or spatial) map of the world, the AR cloud, will be the single most important software infrastructure in computing. Far more valuable than facebook social graph, or google page rank index” say Ori Inbar, Co-Founder and CEO of Augmented Reality.ORG. A promising prediction.

The AR cloud provide a persistant , multiuser and cross device AR landscape. It allows people to share experiences and collaborate. The most known AR cloud experience so far is the famous Pokemon Go game.

So far the AR map works using GPS or image recognition, or local point of cloud for a limited space / a building. The dream will be to copy the world as a point of cloud, for a global AR cloud landscape. A real time systems that could be used by robots, drones etc…

The AWE exhibition presented some interesting AR cloud initiative :

  • The Open AR Cloud Initiative launched at the event and had its first working session.
  • Some good SDK are now available to build your own local AR clouds : Wikitude an Immersal

Source : https://www.linkedin.com/pulse/augmented-reality-state-art-industry-fr%C3%A9d%C3%A9ric-niederberger/

 

How sustainable is the food packaging industry? – Food Dive

As more consumers search for sustainable packaging options, food and beverage companies are forced to make tough decisions about their products.

Shoppers and investors are increasingly looking for companies and brands to take the initiative on environmental issues. A Horizon Media study found 81% of millennials expect companies to make public commitments to good corporate citizenship and 66% of consumers will pay more for products from brands committed to environmentally friendly practices, according to the Nielsen Global Corporate Sustainability Report.

But more eco-friendly practices haven’t been easy for the food packaging industry. Designing eco-friendly packaging that can keep products fresh and endure temperature changes that come with cooking can be a challenge. Packaging companies told Food Dive they recently made moves to offer sustainable options with water-based ink and more compostable packaging, but have faced obstacles along the way. While some brands are aiming to only appear more sustainable, others are making slow efforts to be eco-friendly with new innovations and products.

For major food and beverage companies, the higher cost of sustainable materials and the struggle to keep food fresh are barriers. Production costs for sustainable options be about 25% more compared to traditional packaging. These materials also tend to be less effective in maintaining freshness, since packaging companies say plastic can have a tighter seal and keep out air better than other materials.

“That’s their compromise, it looks eco-friendly — but it’s not.” Damon Leach – Account representative at Green Rush Packaging

Some companies have found a way around the high costs. Damon Leach, an account representative at Green Rush Packaging, told Food Dive that a solution for some food companies has been to use material that looks recyclable to shoppers, but in reality, is not.

Instead of paying more for eco-friendly materials, companies have been picking material, like kraft paper, that looks more sustainable to consumers, he added. Leach said the products that appear to be more green do sell better.

Although Leach said more suppliers and consumers theoretically want sustainable packaging, those materials typically don’t have a long shelf life and consumers don’t want to pay the extra money. But some companies are still making an effort to pay more for eco-friendly packaging despite the challenges.

When will sustainable be the norm?

From producers and companies to retailers, consumers and recycling organizations, packaging can affect the whole supply chain. So the challenge for packaging manufacturers becomes determining what new innovations and materials are the best investments.

Randall LaVeau, business development manager at Interpress Technologies, which manufactures formed paperboard and plastic food packaging products, told Food Dive there is a huge push for more recycling in the marketplace. But he said it is hard to get an eco-friendly material that holds water but isn’t plastic and doesn’t degrade — a necessity for microwavable products that need water to cook.

Many companies are now working to develop recyclable packaging that can withstand heat and hold liquids, but LaVeau​ said there is still a lot of research and development to go before it is widespread.

“Everybody is in the shop trying to figure it out,” LaVeau said. “People have been working on it for the last 10 years or longer, they just haven’t had a good success for it.” 

Evo Ware

For companies that have made sustainability goals, the time is ticking to figure it out. Mondelez just announced its plans to make all their packaging recyclable by 2025. Nestlé, Unilever and PepsiCo have agreed to phase in packaging made from recyclable, compostable and biodegradable materials with more recycled content by 2025, but haven’t released specific details about their plans. In fact, a recent report identified Coca-Cola, PepsiCo and Nestle as businesses contributing most to pollution.

But as these big companies push for more development on sustainable materials, that means cost could continue to be an obstacle. Although consumers say they are willing to pay more for sustainability, they don’t always pick up the more expensive options in stores.

“Just like anything else, when something new comes out… it is more expensive until they can work with it in time and maximize their efficiencies for the cost to come down,” LaVeau said.

New innovations in sustainable packages

Several companies have developed more sustainable options this year. For example, HelloFresh is rolling out more sustainable packaging for its meal kits with recyclable liners created by sustainable design company TemperPack.

And some new developments haven’t come into the mainstream yet. U.S. Department of Agriculture researchers have developed an edible, biodegradable packaging film made of casein, a milk protein, that can be wrapped around food to prevent spoilage.

Other companies are working to find new ways to help the environment. Wayne Shilka, vice president of innovation and technical support at Eagle Flexible Packaging, a printer of packaging in Chicago, has prioritized offering more sustainable options to their customers. Eagle Flexible Packaging uses a water-based ink because it doesn’t create any probable organic compounds that then go out into the atmosphere, making it more environmentally friendly, Shilka said.

“We are finding that sustainable packaging is getting more and more and more interest.”, Wayne Shilka – Vice president of Eagle Flexible Packaging

Six years ago, Eagle Flexible Packaging put together a compostable material for packaging, and about 100 companies discussed the option with them. Only one customer ended up using the compostable product because it cost more any other packaging option the company offered. Every year since, a few more customers have worked with them to outfit their products with compostable material, Shilka said.

As more companies turn to compostable and sustainable packaging, the price will come down and make it more appealing, Shilka added.

“It continues growing to the point that it’s becoming not mainstream, but it’s much more routine that we had people who are calling and are interested and are actually doing something sustainable,” Shilka said.

‘Recyclable to an extent’

While some companies work to find new recyclable materials, others are satisfied with current packaging options. Flexible packaging — which is any package whose shape can be readily changed, such as bags and pouches — is popular. Representatives at packaging companies said flexible packaging can be an issue for sustainability since it has multilayer films with plastic and paper that need to be separated to be recycled.

LaVeau said most of his products are “recyclable to an extent” because of the layers. Certain recycling mills can handle his products, but at others, consumers need to separate the packaging for recycling — which doesn’t always happen.

Green Rush Packaging has the same issue.

“We got to get the end users to separate and recycle better instead of just facilities otherwise it is just waste, bad for the environment,” Leach said. 

Flexible packaging can also provide a higher product-to-package ratio, which creates fewer emissions during transportation and ultimately uses less space in landfills.

Some companies stand by their use of packages that aren’t fully sustainable. Robert Reinders, president of Performance Packaging, a family owned corrugated box plant founded in 1995 by packaging professionals, told Food Dive that about 5% of his products are recyclable. He said flexible packaging is a sustainable option because it uses up less energy and prolongs the shelf life of the food so it eliminates food waste.

“There is all kinds of great benefits to flexible packaging that gets drowned out by the recycle, compostable needs,” Reinders said.

Falling behind other countries’ sustainable goals

In the last two years, more than 70 bills have been introduced in state legislatures regarding plastic bags — encompassing bans, fees and recycling programs. However, many of those laws have not impacted the food packaging industry.

compostable packaging

In comparison, countries across the globe are increasing their efforts and goals when it comes to sustainability for both food and beverage product packaging. But U.S. companies are still in the development stage on many of their innovations.

The Singapore Packaging Agreement — a joint initiative by government, industry and NGOs to reduce packaging waste — has averted about 46,000 metric tons of packaging waste during the past 11 years, according to Eco-Business. In Australia, national, state and territory environment ministers have agreed that 100% of Australian packaging will be recyclable, compostable or reusable by 2025.

Vancouver, Canada has adopted a ban on the distribution of polystyrene foam cups and containers, as well as restrictions on disposable cups and plastic shopping bags. The U.K. also plans to eliminate plastic waste by 2042.

As countries around the world change their packaging to adjust to these sustainability goals, Reinders said U.S. companies will likely adopt more changes. And as more CPG makers start mass producing sustainable options around the world, he said it will drive prices down globally.

“I was at Nestlé headquarters in Switzerland and they are currently making the efforts to find different materials and different processes so they can be recyclable,” Reinders said. “It’s all starting now. The more the big guys get into it, the better it will be.”

Source : https://www.fooddive.com/news/how-sustainable-is-the-food-packaging-industry/539089/

 

Lyft – Geofencing San Francisco Valencia Street – Greater investment in loading zones is needed for this to be more effective

Creating a Safer Valencia Street

San Francisco is known for its famous neighborhoods and commercial corridors — and the Mission District’s Valencia Street takes it to the next level. For Lyft, Valencia Street is filled with top destinations that our passengers frequent: trendy cafes, hipster clothing stores, bars, and live music.

To put it simply, there’s a lot happening along Valencia Street. Besides the foot traffic, many of its restaurants are popular choices on the city’s growing network of courier services, providing on-demand food delivery via cars and bicycles. Residents of the Mission are increasingly relying on FedEx, Amazon, and UPS for stuff. Merchants welcome commercial trucks to deliver their goods. In light of a recent road diet on Mission Street to create much needed dedicated lanes to improve MUNI bus service, many vehicles have been re-routed to parallel streets like Valencia. And of course, Valencia Street is also one of the most heavily trafficked bicycling corridors in the City, with 2,100 cyclists commuting along Valencia Street each day.

Source: SFMTA

With so many different users of the street and a street design that has largely remained unchanged, it’s no surprise that the corridor has experienced growing safety concerns — particularly around increased traffic, double parking, and bicycle dooring.

Valencia Street is part of the City’s Vision Zero High-Injury Network, the 13% of city streets that account for 75% of severe and fatal collisions. From January 2012 to December 2016, there were 204 people injured and 268 reported collisions along the corridor, of which one was fatal.

As the street has become more popular and the need to act has become more apparent, community organizers have played an important role in rallying City forces to commit to a redesign. The San Francisco Bicycle Coalition has been a steadfast advocate for the cycling community’s needs: going back to the 1990s when they helped bring painted bike lanes to the corridor, to today’s efforts to upgrade to a protected bike lane. The People Protected Bike Lane Protests have helped catalyze the urgency of finding a solution. And elected officials, including Supervisor Ronen and former Supervisor Sheehyhave been vocal about the need for change.

Earlier this spring, encouraged by the SFMTA’s first steps in bringing new, much-needed infrastructure to the corridor, we began conducting an experiment to leverage our technology as part of the solution. As we continue to partner closely with the SFMTA as they work on a new design for the street, we want to report back what we’ve learned.

Introduction

As we began our pilot, we set out with the following goals:

  1. Promote safety on the busiest parts of Valencia Street for the most vulnerable users by helping minimize conflict for bicyclists, pedestrians, and transit riders.
  2. Continue to provide a good experience for drivers and passengers to help ensure overall compliance with the pilot.
  3. Understand the effectiveness of geofencing as a tool to manage pickup activity.
  4. Work collaboratively with city officials and the community to improve Valencia Street.

To meet these goals, we first examined Lyft ride activity in the 30-block project area: Valencia Street between Market Street and Cesar Chavez.

Within this project area, we found that the most heavily traveled corridors were Valencia between 16th and 17th Street, 17th and 18th Street, and 18th and 19th Street. We found that these three blocks make up 27% of total Lyft rides along the Valencia corridor.

We also wanted to understand the top destinations along the corridor. To do this, we looked at ride history where passengers typed in the location they wanted to get picked up from.

Next, we looked at how demand for Lyft changed over time of day and over the course of the week. This would help answer questions such as “how does demand for Lyft differ on weekends vs. weeknights” or “what times of day do people use Lyft to access the Valencia corridor?”

We found that Lyft activity on Valencia Street was highest on weekends and in the evenings. Demand is fairly consistent on weekdays, with major spikes of activity on Fridays, Saturdays, and Sundays. The nighttime hours of 8 PM to 2 AM are also the busiest time for trips, making up 44% of all rides. These findings suggest the important role Lyft plays as a reliable option when transit service doesn’t run as frequently, or as a safe alternative to driving under the influence (a phenomenon we are observing around the country).

The Pilot

Our hypothesis was that because of the increased need for curb space between multiple on-demand services, as well as the the unsafe experience of double parking or crossing over the bike lane to reach passengers, improvements in the Lyft app could help create a better experience for everyone.

To test this, our curb access pilot program was conducted as an “A/B experiment”, where subjects were randomly assigned to a control or treatment group, and statistical analysis is used to determine which variation performs better. 50% of riders continued to have the same experience requesting rides within the pilot area: able to get picked up wherever they wanted. The other 50% of Lyft passengers requesting rides within the pilot zone were shown the experiment scenario, which asked them to walk to a dedicated pickup spot.

Geofencing and Venues

Screenshot from the Lyft app showing our Valencia “Venue” between 17th and 18th Street. Passengers requesting a ride are re-directed to a dedicated pickup spot on a side street (depicted as a purple dot). During the pilot, we created these hot spots on Valencia Street between 16th St and 19th St.

Our pilot was built using a Lyft feature called “Venues”, a geospatial tool designed to recommend pre-set pickup locations to passengers. When a user tries to request a ride from an area that has been mapped with a Venue, they are unable to manually control the area in which they’d like to be picked up. Rather, the Venue feature automatically redirects them to a pre-established location. This forced geofencing feature helps ensure that passengers are requesting rides from safe locations and build reliability and predictability for both passengers and drivers as they find each other.

Given our understanding of ride activity and demand, we decided to create Venues on Valencia Street between 16th Street and 19th Street. We prioritized creating pickup zones along side streets in areas of lower traffic. Where possible, we tried to route pickups to existing loading zones: however, a major finding of the pilot was that existing curb space is insufficient and that the city needs more loading zones. To support better routing and reduce midblock u-turns or other unsafe driving behavior, we tried to put pickup spots on side streets that allowed for both westbound and eastbound directionality.

Findings

Our pilot ran for three months, from March 2018 to June 2018. Although our initial research focused on rideshare activity during hours of peak demand (i.e. nights and weekends), to support our project goals of increasing overall safety along the corridor and to create an easy and intuitive experience for passengers, we ultimately decided to run the experiments 24/7.

The graphic below illustrates where passengers were standing when they requested a ride, and which hotspot they were redirected to. We found that the top hot spots were on 16th Street. This finding suggests the need for continued coordination with the City to make sure that the dedicated pickup spots to protect cyclists on Valencia Street don’t interrupt on-time performance for the 55–16th Street or 22–Fillmore Muni bus routes.

Loading Time

Loading time, when a driver has pulled over to wait for a passenger to arrive or exit their car, was important for us to look at in terms of traffic flow. This is a similar metric to the transportation planning metric, dwell time.

Currently, our metric for loading time looks at the time between when a driver arrives at the pickup location and when they press the “I have picked up my passenger” button. However, this is an imperfect measurement for dwell time, as drivers may press the button before the passenger gets in the vehicle. Based on our pilot, we have identified this as an area for further research.

Going into our experiment, we expected to see a slight increase in loading time, as passengers would need to get used to walking to the pickup spot. This hypothesis was correct: during the pilot, we saw loading time increased from an average of 25 seconds per ride to 28 seconds. To help speed up the process of drivers and passengers finding each other, we recommend the addition of wayfinding and signage in popular loading areas.

We also wanted to understand the difference between pickups and drop-offs. Generally, we found that pickups have a longer loading time than a drop-off.

Post Pilot Recommendations

Ridesharing is one part of the puzzle to creating a more organized streetscape along the Valencia corridor, so sharing information and coordinating with city stakeholders was critical. After our experiment, we sat down with elected officials, project staff from the SFMTA, WalkSF, and the San Francisco Bicycle Coalition to discuss the pilot findings and collaborate on how our work could support other initiatives underway across the city. We are now formally engaged with the SFMTA’s Valencia Bikeway Improvement Project and look forward to continuing to support this initiative.

Given the findings of this pilot program and our commitment to creating sustainable streets (including our acquisition of the leading bikeshare company Motivate and introduction of bike and scooter sharing to the Lyft platform), we decided to move our project from a pilot to a permanent featurewithin the Lyft app. This means that currently, anyone requesting a ride on Valencia Street between 16th Street and 19th Street will be redirected to a pickup spot on a side street.

Based on the learnings of our pilot, we recommend the following:

  1. The city needs more loading zones to support increased demand for curbside loading.
  2. Valencia Street can best support all users of the road by building infrastructure like protected bike lanes that offer physical separation from motor vehicle traffic.
  3. Ridesharing is one of many competing uses for curb space. The City needs to take a comprehensive approach to curb space management.
  4. Geofencing alone does not solve a space allocation problem. Lyft’s digital solutions are best leveraged when the necessary infrastructure (i.e. loading zones) are in place. The digital and physical environments should reinforce each other.
  5. Wayfinding and signage can inform a user’s trip-making process before someone opens their app. Having clear and concise information that directs both passengers and riders can help ensure greater compliance.
  6. Collaboration is key. Keeping various stakeholders (public agencies, the private sector, community and advocacy groups, merchants associations, etc.) aware and engaged in ongoing initiatives can help create better outcomes.

Technology is Not a Silver Bullet

We know that ridesharing is just one of the many competing uses of Valencia Street and technology alone will not solve the challenges of pickups and drop-offs: adequate infrastructure like protected bike lanes and loading zones will be necessary to achieving Vision Zero.

Looking ahead, we know there’s much to be done on this front. To start with, we are are excited to partner with civic engagement leaders like Streetmixwhose participatory tools ensure that public spaces and urban design support safe streets. By bringing infrastructure designs like parking protected bike lanes or ridesharing loading zones into Streetmix, planners can begin to have the tools to engage community groups on what they’d like to see their streets look like.

We’ve also begun partnering with Together for Safer Roads to support local bike and pedestrian advocacy groups and share Lyft performance data to help improve safety on some of the nation’s most dangerous street corridors. And finally, through our application to the SFMTA to become a permitted scooter operator in the City, we are committing $1 per day per scooter to support expansion of the City’s protected bike lane network. We know that this kind of infrastructure is critical to making safer streets for everyone.

Our work on Valencia Street is a continuation of our commitment to rebuild our transportation network and place people not cars at the center of our communities.

We know that this exciting work ahead cannot be done alone: we look forward to bringing this type of work to other cities around the country and to working together to achieve this vision

Source : https://medium.com/@debsarctica/creating-a-safer-valencia-street-54c25a75b753

 

TNW – VR in education is promising, but expensive

VR in education is promising, but expensive

It’s your first day at a new job, and you’re stuck going to corporate training. But instead of going to a training room and listening to the HR director drone on about the vacation policy, you’re directed to the IT desk.

You’re greeted there by a friendly college intern. “Welcome to work,” she says, handing you a box. “Here’s your VR headset. Enjoy orientation!”

Gut check: How do you feel about this scenario?

A recent survey found that approximately half of professionals would be interested in learning something new in a virtual reality environment.

So regardless of whether the idea of virtual training makes your heart skip a beat or stop altogether, you’re in pretty good company.

The question is  is this the right direction?

It might be. There hasn’t been a ton of research done on the educational uses of VR, but the one in-depth study that has been done was optimistic.

The memory palace study

Researchers created a virtual castle (“the memory palace,” named for an old mnemonic device of the same name) and placed pictures of various celebrities throughout it.

One group of research subjects got to explore the castle using a VR headset while another group explored it using a computer and mouse.

After exploring for a while, each group took a break for two minutes and then went back to the castle. This time, all of the pictures were replaced with question marks, and the subjects had to remember which picture went where.

Andshockerthe VR users did better than the computer users. Therefore, obviously, VR is a more effective teaching tool than a computerright?

Not so fast. Even though VR beat out desktop computers in the memory palace, there are other factors to consider when it comes to education.

The novelty effect

One possible explanation for VR’s success in this study is the novelty effect, which basically means that newer technology will always give an initial bump in learning outcomes just because it’s new.

Chances are, at least some of the subjects who got to use VR to explore the memory palace were having their very first VR experience. Their minds were blown. Their interest in the new technology probably drove them to explore every nook and cranny of their virtual environment and memorize as many details as possible.

Meanwhile, their counterparts on the desktop computers sat there, completely jaded to the mystical connection of mouse and screen.

But the novelty effect alone shouldn’t make us completely discount these findings. A couple decades ago, researchers were doing similar tests comparing computers to TVs and frankly being a little overly pessimistic that computers would be the wave of the future.

Now that we live in a world where TVs and computers are equally un-novel, I don’t think you’ll find anyone who would argue that Schoolhouse Rock is a more effective teaching tool than Khan Academy, even if the songs are better.

A better reason to be leary of a VR cure-all

Let’s imagine a slight variation of the memory palace experiment. Test subjects still explore a castle, and they still find portraits of celebrities, but this time the portraits include some biographical information about the celebrity.

Then, after they’ve explored the castle and taken a two minute break, the subjects have to recall as much biographical information about as many celebrities as possible.

My hypothesis for this experiment would be that the computer users would actually perform better. Reading information off of a computer screen and recalling it later is old hat.

The test subjects in the VR environment would be so excited about exploring their surroundings that they wouldn’t want to take the time to read and retain information.

But in the actual experiment, where the subjects needed to remember the location of pictures instead of biographic data, the propensity to run around and explore was beneficial in completing the task at hand.

The more enjoyment you get out of exploring your surroundings, the more likely you are to remember details about what you see. In that situation, it should come as no surprise that VR brought better results than a desktop computer.

Another possible follow-up study would involve physically constructing the memory palace and seeing how well people recall memories of a real castle compared to a VR one.

My money would be on VR as long as the technology retains its novelty, but if it ever becomes as mundane as a desktop computer, I bet the real castle would produce better results.

Why? Because the actual task is to recall something’s position. Where in the castle did you see the picture of Marilyn Monroe? Where did you see the picture of Mickey Mouse? The more directly you can interact with the space you’re trying to locate an object in, the better your recall is bound to be.

What training contexts are best suited for VR?

The real challenge in applying VR to education is figuring out which topics VR would be the best teaching platform for.

This is not a new concept. There’s been an ongoing debate about online vs. in-person training for as long as online training has been an option.

And there’s really only one answer that’s always right: It depends on what you’re teaching. So VR won’t ever be the best tool for every single learning situation because no educational tool can ever claim that honor.

But VR education will be very well suited to situations where physical location mattersbut only when a non-virtual version of that location is unavailable.

For example, if you really are welcoming employees to their first day of work, it would probably be more effective to give them a real tour of the actual building instead of having them wander through a virtual reproduction.

But if you’re teaching interior design or training a batch of private investigators, VR might be the best possible educational tool.

And let’s not forget about AR (augmented reality). Instead of providing a fully immersive experience like VR does, AR inserts virtual elements into your view of your real surroundings. AR is currently being explored as a platform for training firefighters.

This is a perfect match. You can have your firefighters or other rescue workers running around in a real building while dealing with virtual hazards. This might be the best possible way to teach a dangerous job in a safe environment.

But not all of us need to take (or deliver) that kind of training. If you’re an HR director tasked with explaining medical benefits to a batch of new hires, maybe it’s best to stick with powerpoint for now.

https://thenextweb.com/contributors/2018/08/12/virtual-reality-education-promising-but-expensive/

 

FoodDive – How Big Food drives impulse buys online

For decades, snack and candy makers have filled checkout lanes with shelves of eye-catching treats to encourage last-minute purchases. But as online shopping gains mainstream acceptance, Big Food can no longer rely on a captive in-store audience — and brands are racing to find ways to capture these spontaneous buys in the digital space.

This is no small feat, as the values that drive in-store shopping behaviors can be dramatically different from online motivators. Those triggers also vary across the growing array of e-commerce shopping paths consumers can take, ranging from supermarket websites and mobile apps to pure-play e-grocery sites and direct-to-consumer platforms.

“Regardless of where the shopping trip ends, the search now begins in digital, most often in the palm of the consumer’s hand,” Doug Straton, Hershey’s chief digital commerce officer, told Food Dive in an email. “It’s clear that the way people consume our category is enduring, but the way people purchase our category is evolving.”

For legacy food manufacturers, this evolution is a double-edged sword. On one hand, these digital touch points give brands new opportunities to gain consumer mindshare — Nielsen and the Food Marketing Institute predict that grocery e-commerce will be a $100 billion industry by 2025, and more than 40% of coveted millennial shoppers bought groceries online last year.

On the other hand, the internet’s infinite array of trendy new food products can entice consumers away from established brands that are normally go-to’s in-store.

“Regardless of where the shopping trip ends, the search now begins in digital, most often in the palm of the consumer’s hand.”

Doug Straton, Chief digital commerce officer, Hershey

“[Online] shoppers are just about about as impulsive as they would be in store, but they’re far more open-minded to how many brands can fulfill their needs,” Jordan Rost, vice president of consumer insights at Nielsen, told Food Dive. “They have so much more choice, and the ability to jump between brands has really enabled them to explore a bit more.”

In fact, Nielsen data shows that shoppers are 5% more likely to make an impulse grocery buy online than in-store. For example, snacks in categories like crackers and popcorn and chips and pretzels enjoy 14.4% and 13.7% more buys online than in brick-and-mortar formats, respectively.

This more level playing field adds another complex layer to the million-dollar question of a perfect online impulse strategy, Jared Koerten, head of packaged food research at Euromonitor International, told Food Dive.

“There is no perfect strategy at this moment. It’s a huge challenge and there are a lot of [tactics] that companies are throwing at the wall to see if they stick,” he said.

Personalized content can deliver a new instant gratification

Personalization is a play manufacturers can make across digital shopping platforms and social media channels to solve perhaps the biggest deterrent to online impulse purchases: the lack of instant gratification.

“Even with the fastest delivery we have, that’s still like a two-hour window, and that’s not even close to the [in-store impulse buy] experience,” Koerten said. “When you’re looking to scratch that itch, so to speak, and want something sweet, getting it in two [hours] doesn’t really work.”

But the speed and ubiquity of the internet has also led to new kinds of consumer cravings, which manufacturers can satisfy to make the consumer’s wait between purchase and delivery or pickup of their treat more enjoyable.

“A lot of people have hypothesized that people are chewing gum less and eating candy less because they’re on their phones all the time. They don’t have the need for distraction because it’s right in their hands, and it’s incumbent upon brands to… take advantage of the fact that consumers are really connected and they can be a part of that conversation,” Rost said.

Though this consumer behavior is bad news for manufacturers across the indulgent snack space, the chewing gum category is particularly vulnerable. According to data from Euromonitor, global gum sales have fallen 15% since 2007, the year the iPhone debuted.

The key is finding a compelling digital substitute that delivers a sense of immediacy and excitement, Koerten said. This could be providing an engaging video, a recipe, or even a related meme at checkout that consumers can share with their social media circles.

“Even with the fastest delivery we have, that’s still like a two-hour window, and that’s not even close to the in-store impulse buy experience.”

Jared Koerten, Head of packaged food research, Euromonitor International

“What we need to do is use consumer data points to create content that connects on an emotional level, that’s personalized, and makes our brands easily found and bought,” Straton wrote. “Leveraging earned media and user-generated content that evokes brand love is a wonderful way to stay top-of-mind for our fans.”

Delivering substitutes like these, however, requires collaboration with retailers. They retain a great deal of control of the checkout experience in online shopping environments — and can better position their private label offerings for impulse purchases in this space.

General Mills promotes cooking videos that teach consumers how to incorporate its products into related at-home recipes on grocery sites with which it partners. This strategy could be a savvy way for manufacturers big and small to deliver the virtual food experiences consumers demand.

For example, if a shopper were to add buttermilk biscuits to his cart, a manufacturer could promote a biscuits and gravy recipe that features its branded sausage links — keeping its name top of mind and also bringing potential impulse purchases to a category that doesn’t typically benefit from them. In this way, online offers a flexibility that in-store environments can’t easily match.

It’s also important for manufacturers to promote creative content beyond the online checkout process in order to capture impulse spend and build brand loyalty with consumers, priming them for future digital shopping trips.

“That impulsivity has shifted to our feeds … and to the places where we’re consuming media,” Rost said. “So brands really need to expand the range of places where they merchandise their products and actually communicate the benefits of their brands. Places like social media are going to be incredibly important for tapping into that sense of discovery and willingness to try new brands.”

Instagram feed

Stopping stumbling blocks

Eliminating obstacles for online shoppers can also create opportunities that lead to spontaneous food purchases.

Koerten said shipping fees are perhaps the biggest barrier to completing the online checkout process — a consumer behavior that many big food brands have leveraged to promote their products.

“One of the more interesting models that I’ve seen is having the manufacturers actually pay for a delivery,” Koerten said. “Shoppers are very, very sensitive to free shipping. In fact, it’s one of the biggest factors that drives online sales, and if consumers can’t get free shipping, they often abandon the purchase entirely.”

In response to this phenomenon, major food and beverage companies have promoted offers on sites like Instacart and Shipt. The brand will cover the site’s shipping fee if the consumer meets a minimum order size of its products, Korten said.

Mars has also tested a similar model with Alibaba in China, where the candy giant promotes a selection of its impulse-type products at checkout when the shopper is near the site’s minimum purchase requirement for free delivery.

“So then you for you as a consumer, assuming that you were already going to buy a package of Oreos for three or four dollars, it makes sense to add one or two more Nabisco products to get up over that $10 threshold because you would have spent $5 on shipping anyway,” he said. “For manufacturers, [covering shipping] is obviously not a massive spend for them when you look at their total promotional budget, and it helps them get more of those impulse-type items into the cart.”

Straton wrote that Hershey uses similar tactics to ensure its candy products make it into shoppers’ digital carts, often by “suggesting adding a candy bar during online checkout.”

“Shoppers are very, very sensitive to free shipping… it’s one of the biggest factors that drives online sales, and if consumers can’t free shipping they often abandon the purchase entirely.”

Jared Koerten, Head of packaged food research, Euromonitor International

Beyond making the individual sale, it’s crucial for candy and snack brands to ensure their products make it through checkout. Unlike brick-and-mortar shopping, online food purchases are heavily list-driven — a phenomenon shaped by both consumers themselves and the platforms they use to shop.

“Most online grocery orders (nearly 80%) are sourced from a combination of grocery ‘smart lists’ — algorithmically curated lists based on your previous purchases and behavior — and search. Being on the list is critical,” Straton wrote. “Once that consumer buys one of our snacks, it’ll likely stay on their pre-loaded list for the next purchase — and we move that unplanned ‘impulse’ purchase into a planned one.”

Besides providing perks like waived shipping fees, manufacturers also need to ensure that they are one of the first brands to appear when consumers search for a related product, whether it be on social media, Google or a grocery platform.

“The way you master search in the digital world is with optimized content,” Straton wrote. “Hershey breaks down content into three buckets: branded content, enterprise content (i.e. ingredients and user-generated content… [and we] are collecting, managing and deploying all three types of content to optimize search and our digital shelf presence. In modern retail, we know that digital is the first trip, so if you don’t merchandise the digital shelf correctly, people may choose not to shop with you in the digital or physical store.”

Walmart grocery pickup
Credit: Walmart

Meeting consumers where they are

As convenience-focused services like Instacart and supermarket click-and-collect programs blur the line between brick-and-mortar and digital commerce, food companies have had to find new ways to intercept the consumer before they reach checkout.

“We have moved away from seeing brick-and-mortar and online as bifurcated shopping experiences. The reality is that grocery shopping today occurs in one holistic retail ecosystem where brick-and-mortar and online are inextricably linked,” Straton wrote. “We are now focused on gaining a better understanding of the shopper needs based on the fulfillment models through which they choose to receive their goods.”

These models include grocery delivery, direct-to-consumer platforms and grocery pick-up, which Koerten said is a particularly tough cycle to break into because the consumer often never has to leave their car to collect their purchases.

But if shoppers are placing their click-and-collect orders through a grocery app, location-based technology could help manufacturers create a controlled environment similar to in-store checkout lanes within the consumer’s vehicle.

“[Technologies] like Walmart Grocery Pickup and other programs like this use GPS location within your smartphone app to notify Walmart that you’re there, and they send someone out to drop off your order,” Koerten said. “Some manufacturers have talked about sending a notification at that point through apps saying ‘We see you’re here for your order. An associate will be out in just a minute or two. In the meantime, would you like us to throw a Reese’s Peanut Butter Cup in your bag?’”

“We have moved away from seeing brick-and-mortar and online as bifurcated shopping experiences. The reality is that grocery shopping today occurs in one holistic retail ecosystem where brick-and-mortar and online are inextricably linked.”

Doug Straton, Chief digital commerce officer, Hershey

As grocers and e-tailers have introduced product collection lockers to the click-and-collect purchase path, manufacturers have worked to transform these into a physical touch point for their impulse-category products.

Last year, Hershey partnered with Peapod to develop a click-and-collect locker that also served as a vending machine for branded candy and snacks. The strategy ensures that even if a consumer passes up a potential impulse buy when he checks out online, he can be tempted once more when he collects his groceries in person.

These kinds of partnerships also give Big Food a chance to emulate the monopoly they have on checkout-lane shelves. In purely digital contexts, trendy upstarts stand a better chance of capturing last-minute consumer spend, so long as they can invest in marketing and a value proposition that rivals mainstream players. But when it comes to store fulfillment models like click-and-collect, legacy brands have the upper hand.

“Some of these [small] brands have struggled because when you get into ship-to-store, you’re still limited to what’s on the shelf, so the number of options is much smaller,” Koerten said. “So the big brands actually do better within the click-and-collect type models because they have less competition from smaller, niche startups that can more effectively compete through an online pure-play platform.”

https://www.fooddive.com/news/how-big-food-drives-impulse-buys-online/527809/

Hubspot – The Hard Truth About Acquisition Costs (and How Your Customers Can Save You)

Trust in businesses is eroding, and so is patience. Marketing and sales are getting harder, and the math behind most companies’ acquisition strategy is simply unworkable.

The best point of leverage you have to combat these changes? An investment in customer service.


Consumers don’t trust businesses anymore

The way people interact with businesses has changed — again. The internet’s rise three decades ago did more to change the landscape of business than anyone could have imagined in the 1990s. And now it’s happening again.

Rapid spread of misinformation, concerns over how online businesses collect and use personal data, and a deluge of branded content all contribute to a fundamental shift — we just don’t trust businesses anymore.

1-trust-in-business

  • 81% trust their friends and family’s advice over advice from a business
  • 55% no longer trust the companies they buy from as much as they used to
  • 65% do not trust company press releases
  • 69% do not trust advertisements, and 71% do not trust sponsored ads on social networks

We used to trust salespeople, seek out company case studies, and ask companies to send us their customer references. But not anymore. Today, we trust friends, family, colleagues, and look to third-party review sites like Yelp, G2Crowd, and Glassdoor to help us choose the businesses we patronize, the software we buy, and even the places we work.

Consumers are also becoming more impatient, more demanding, and more independent.

2-consumers-are-impatient

In a survey of 1,000 consumers in the United States, United Kingdom, Australia, and Singapore, we found that 82% rated an immediate response as “important” or “very important” when they were looking to buy from a company, speak with a salesperson, or ask a question about a product or service. That number rises to 90% when looking for customer service support.

But what does “immediate” mean? Over half (59%) of buyers expect a response within 30 minutes when they want to learn more about a business’ product or service. That number rises to 72% when they’re looking for customer support and 75% when they want to speak with a salesperson.

Modern consumers are also unafraid to tell the world what they think. Nearly half (49%) reported sharing an experience they had with a company on social media, good or bad. While buyers are fairly even split between being more likely to share a good experience (49%) vs. a bad one (51%), every customer interaction you have is an opportunity to generate buzz — or risk public shaming.

The hard truth is that your customers need you a lot less than they used to. They learn from friends, not salespeople. They trust other customers, not marketers. They’d rather help themselves than call you.

Acquisition is getting harder

The erosion of consumer trust is a difficult issue for companies to grapple with on its own. But as if that wasn’t enough, the internet, which has always fundamentally transformed the traditional go-to-market strategy, is moving the goalposts again.

Let’s break this down into two functions: Marketing and sales.

Marketing is getting more expensive

We’ve taught inbound marketing to tens of thousands of companies and built software to help them execute it. Inbound marketing accelerated business growth through a repeatable formula: Create a website, create search-optimized content that points to gated content, then use prospects’ contact information to nurture them to a point of purchase.

This still works — but the market is experiencing four trends that, combined, have made it harder for growing businesses to compete with long-established, better-resourced companies.

Trend 1: Google is taking back its own real estate

Much of modern marketing is dependent on getting found online. Without the multimillion-dollar brand awareness and advertising budgets of consumer goods titans, the best way a growing business can compete is creating content specific to their niche and optimizing it for search.

Google, the arbiter of online content discoverability, has made significant changes in the last few years that make it harder for marketers to run this model at scale without a financial investment.

First, through featured snippets and “People Also Ask” boxes, Google is reclaiming its own traffic.

featured snippet is a snippet of text that Google serves on the search engine results page (SERP). You’ve likely been served a featured snippet when you were searching for a definition, or something that involved a step-by-step explanation.

Here’s an example of a featured snippet. It’s designed to pull information onto the SERP itself so there’s no need to click into the full recipe, hosted on another website.

3-featured-snippet

“People also ask” boxes are a different permutation of a featured snippet. These display questions related to your original search, live on the SERP, and are expandable with a click, like so:

4-people-also-ask

Each time you expand a “People Also Ask” section, Google adds 2-4 queries to the end of the list.

The combined effect of featured snippets and “People Also Ask” boxes? It depends. If your site is the first result and gets featured in the snippet, your traffic should increase. But if you don’t win the featured snippet, even if your post is ranked at position 1, it’s likely your overall traffic will decrease.

Second, Google’s also changed its search engine results page (SERP), moving search ads from a sidebar to the top four slots. Organic results fall much further down the page, and on a mobile device they disappear entirely.

Search won’t ever become purely pay-to-play. But in a world where screen real estate is increasingly dominated by sponsored content, marketers need to factor paid tactics into any organic strategy.

Voice search adds a third wrinkle to these shifts — the winner-take-all market. As the use of voice search has proliferated, it’s become more and more important to become the answer, as voice assistants only provide one result when asked a question.

On Google, featured snippets demonstrate this necessity. Amazon has also introduced “Amazon’s Choice” products, the first items suggested when consumers order items via voice assistant. It’s not hard to imagine a future where all Amazon’s Choice products are also Amazon-branded, manufactured, and distributed.

Trend 2: Social media sites are walled gardens

A decade ago, social media sites were promotion channels that served as a path between users and the poster’s site. The borders between different sites were fluid — people would discover content on Facebook, Twitter, and LinkedIn, then click through to content (usually hosted on another site).

Today, social media sites are walled gardens. Algorithms have been rewritten to favor onsite content created specifically for that platform. Facebook Messenger and evolving paid tools like Lead Ads are becoming a table-stakes marketing channel, meaning businesses can’t just “be on Facebook” — they must recreate their marketing motion in a second place.

Facebook and LinkedIn have also deprioritized showing content that links offsite in favor of family and friends’ content (on Facebook) and onsite video and text (on LinkedIn). Not only does your branded content have a harder time competing with other brands, it will also have to compete for attention with your prospects’ personal network. Twitter’s investment in streaming video partnerships with entertainment and news networks are a nod to bringing consumers content they’d watch anyway in a platform-owned experience.

Sites like Amazon and Facebook are also becoming starting points for search. Over half of product searches (52%) begin on Amazon, while 48% of searches for content originate on Facebook — almost equivalent to Google’s reach (52%). And both Amazon and Facebook sell targeted advertising space.

5-top-content-channels

Why is any of this important?

These algorithm changes reflect the desire companies have to keep the audiences they own, on their own sites. As long as they can monetize their traffic, they have no incentive to move back to the old passthrough model.

Increasingly, Facebook is a destination. Twitter is a destination. LinkedIn is a destination. It’s no longer enough to create a piece of content for your own site, then schedule out promotion across channels that point back to that content.

Savvy marketers know their ideas must be channel-agnostic and channel-specific at the same time. To get the most mileage out of a piece of content, its core concept must perform well across multiple channels, but marketers have to do more upfront work to create separate versions of this content to best suit the channel on which it’s appearing.

Trend 3: It’s getting more expensive to do marketing

Search and social media titans have moved their goalposts to create a more competitive content discovery landscape. At the same time, barriers to entry on these platforms are getting higher in two ways:

1. Organic acquisition costs are rising.

According to ProfitWell, overall customer acquisition costs (CAC) have been steadily rising for B2B and B2C companies.

Over the last five years, overall CAC has risen almost 50% — and while paid CAC is still higher than content marketing (organic) CAC, organic costs are rising at a faster rate.

Profitwell_RisingCAC(source: ProfitWell)

2. Content marketers are commanding higher salaries.

It’s not only harder to get value from content, it’s getting more expensive to create it. ProfitWell’s study examined the rise of content marketers’ salaries by location — median salary has risen 24.9% in metropolitan areas and 18.9% for remote workers in the last five years.

Profitwell_CMSalaries

(source: ProfitWell)

This rise is partially explained by changes in the content marketing profession. Google’s changing algorithm requires more specialized knowledge than ever. Not only are there specific optimization best practices to win featured snippets, Google’s current algorithmic model favors sites that are architected using the topic cluster model. Depending on the size of your site, this can be a massive undertaking — at HubSpot, it took us over six months to fully organize our blog content by this model.

Trend 4: GDPR

The following is not legal advice for your company to use in complying with EU data privacy laws like the GDPR. Instead, it provides background information to help you better understand the GDPR. This legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so we insist that you consult an attorney if you’d like advice on your interpretation of this information or its accuracy. In a nutshell, you may not rely on this as legal advice, or as a recommendation of any particular legal understanding.

The General Data Protection Regulation recently passed by the European Union (EU) imposes new regulations on how businesses are allowed to obtain, store, manage, or process personal data of EU citizens.

At a high level, here’s what GDPR means for marketing teams:

  • Businesses collecting prospect data must explicitly state how that data will be used, and may only collect what’s necessary for that stated purpose
  • Businesses may only use that data for the specified purposes above, and ensure it’s stored according to GDPR provisions
  • Businesses may only keep personal data for as long as is necessary to fulfill the intended purpose of collection
  • EU citizens may request that businesses delete their personal data at any time, and businesses must comply

GDPR doesn’t go into effect until May 25, 2018, so it’s hard to predict the exact impact it will have on lead generation and collection. But we feel confident that GDPR is the first step toward more regulation of how businesses interact with consumers globally, further limiting your marketing team’s power.

In combination, these four trends mean that:

  • It’s harder to stand out in a crowded internet
  • It’s more expensive to find talent and produce content
  • Algorithmic changes will force investment in a multichannel marketing strategy

So it’s getting harder to get prospects to your site. But once you get them in the door, it should be standard operating procedure to getting those deals closed, right? Turns out … not quite.

Sales is getting harder, too

Every year, HubSpot surveys thousands of marketers and salespeople to identify the primary trends and challenges they face. And year after year, salespeople report that their jobs are becoming more difficult.

Consider this chart (a preview of State of Inbound 2018).

8-prospecting-is-harder

A whopping 40% of respondents reported that getting a response from prospects has gotten harder, while 29% and 28% respectively identify phone connections and prospecting as pain points.

Almost a third (31%) have to engage with multiple decision makers to move a single deal forward, and just as many find it difficult to close those deals.

Salespeople have to overcome an additional challenge on top of these sobering statistics: They aren’t trusted. Year over year, consumers report that salespeople are their least trusted source of information when making purchase decisions.

9-sources-of-information

And even when there’s no purchase decision being made, salespeople don’t have a great reputation. A 2016 HubSpot study found that sales and marketing are among two of the least trusted professions — only above stockbrokers, car salesmen, politicians, and lobbyists.

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For software companies, sales is becoming a more technical field. Buyers contact sales later in the process — more prefer a “try before you buy” approach through free trials or “freemium” versions of paid products. At these companies, the actual onboarding flow and user experience of the product are often more important than the sales team, as most customers become free users before ever speaking with a human.

In the same way that a big chunk of sales work was consumed by marketers 10 years ago, a big chunk of sales work today is being consumed by developers and growth marketers.

The implications are clear. Buyers no longer rely on salespeople to steward them through a purchasing process, preferring to do independent research or lean on their networks for an opinion. The inherent distrust of the profession is diluting salespeople’s influence salespeople in a purchasing process, making your acquisition strategy less and less consistently reliable.

This is scary stuff. But there’s a bright side. Within the pain of change lies opportunity, and your business boasts a huge, overlooked source of growth you probably haven’t invested in at all — your customers.

Your customers are your best growth opportunity

When you’re growing a business, two numbers matter more than anything else:

  1. How much it costs to acquire a new customer (or “CAC”)
  2. That customer’s lifetime value — how much they’ll spend with you over their lifetime (or “LTV”)

For many years, most businesses (us included) focused on lowering CAC. Inbound marketing made this relatively easy, but the new rules of the internet mean this is getting harder. As Facebook, Amazon, and Google tighten their grips on content, the big opportunity for today’s companies is raising LTV.

If your customers are unhappy, you might be in trouble. But if you’ve invested in their experience, you’re well-poised to grow from their success.

When you have a base of successful customers who are willing and able to spread the good word about your business, you create a virtuous cycle.

Happy customers transform your business from a funnel-based go-to-market strategy into a flywheel. Through promoting your brand, they’re supplementing your in-house acquisition efforts. This creates a flywheel where post-sale investments like customer service actually feed “top of the funnel” activities.

flywheel-product

Buyers trust people over brands, and brands are getting crowded out of their traditional spaces, so why throw more money at the same go-to-market strategy when you could activate a group of people who already know and trust you?

Customers are a source of growth you already own, and a better and more trusted way for prospects to learn about your business. The happier your customers, the more willing they are to promote your brand, the faster your flywheel spins, and the faster your business grows. Not only is this the right thing to do by your customers, it’s the financially savvy thing to do for your business. It’s a win-win-win.

At some point, your acquisition math will break

More and more businesses are moving to a recurring-revenue, or subscription-based model. A recurring revenue model means customers pay a monthly fee for membership or access to products.

A recurring revenue model makes it easy to project expected revenue over a set period of time. Understanding how money moves in and out of the business makes headcount planning, expansion planning, and R&D efforts far easier.

Luckily it doesn’t matter if your company is subscription-based or not — a recurring revenue model contains lessons that apply to all businesses. Before we dive in, there are three core assumptions this model relies on.

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First, every business has a defined total addressable market, or TAM. Your TAM is the maximum potential of your market. It can be bound by geography, profession, age, and more — but in general, every product serves a finite market.

Second, every company aims to create repeat customers — not just subscription-based ones. All of the examples below are businesses that benefit from recurring revenue, even if it’s not formalized through contracts or subscription fees:

  • A beauty products store where customers typically purchase refills once every three months
  • A hotel chain that becomes the default choice for a frequent traveler
  • A neighborhood restaurant that’s cornered the market on Saturday date nights

Third, the key to growth is to retain the customers you already have, while expanding into the portion of your TAM that you haven’t won yet.

The easiest way to understand why thinking about your business like a subscription-based company does is valuable is to walk through the following hypothetical example — let’s call it Minilytics Inc.

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Minilytics starts with a customer base of 10 people, and a churn rate of 30% — meaning three of their customers will not buy from them again. Each of Minilytics’ salespeople can sell five new customers per month. Because Minilytics’ customer base is so small, they only need to hire one salesperson to grow.

Fast forward several months, and Minilytics now has 50 customers, 15 of whom churn. To grow, Minilytics’ CEO has to bring on three more salespeople, who create additional overhead cost — their salaries.

You can probably see where this is going. At 100 or 1,000 customers, Minilytics’ CEO simply cannot hire enough salespeople to grow. The sheer cost of paying a staff to simply maintain a business that’s losing 30% of its customers each month will shutter most businesses on its own.

While Minilytics is struggling to plug the leaks in its business, something else is happening that will tank the company — even with an army of salespeople.

Remember TAM? While Minilytics’ CEO was hiring salespeople to replace churned customers, the company was also rapidly burning through its TAM. Generally, customers that churn do not come back — it’s hard enough to gain a consumer’s trust. To break trust through a poor experience, then try to rebuild it, is nearly impossible.

Even if Minilytics is able to afford a rapidly expanding sales team, it’s been rapidly churning through its TAM. Eventually, Minilytics will run through its entire total addressable market — and there will be no room to grow.

Luckily, Minilytics isn’t destined for this fate. Let’s rewind to that first month and explore what they could have done differently.

Building a good customer experience is the foundation of growth

Growing a sustainable company is all about leverage.

In plain English, if you can identify the parts of your business model that require great effort but provide little reward, then re-engineer them to cost you less effort or provide more reward, you’ve identified a point of leverage.

Most companies hunt for leverage in their go-to-market strategy, which usually involves pouring money into marketing or sales efforts. Customer service, customer success, customer support — or whatever you call it (at HubSpot, we have a separate team dedicated to each function, but we’re the exception) — has traditionally been viewed as a cost center, not a profit center.

It’s not hard to understand why. The ROI of sales and marketing investment is immediately tangible, while investment in customer service is a long game.

But most companies mistakenly try to optimize for fewer customer interactions, which just means issues don’t get addressed. Because they’re thinking short-term, it ends up costing them dearly in the long term. Too many businesses think once a sale is made and the check’s cleared, it’s on to acquire the next new customer.

That doesn’t work anymore. The hardest part of the customer lifecycle isn’t attracting their attention or closing the deal — it’s the journey that begins post-sale.

Once your customers are out in the wild with your product, they’re free to do, say, and share whatever they want about it. Coincidentally, that’s when many companies drop the ball, providing little guidance and bare-bones or difficult-to-navigate customer support. This approach, quite frankly, makes no sense.

Think about it this way: You control every part of your marketing and sales experience. Your marketing team carefully crafts campaigns to reach the right audiences. Your sales team follows a playbook when prospecting, qualifying, and closing customers. Those processes were put in place for a reason — because they’re a set of repeatable, teachable activities you know lead to consistent acquisition outcomes.

Once a customer has your product in their hands, one of two things will happen: Either they will see success, or they will not. If they’re a new customer or first-time user, they might need help understanding how to use it, or want to learn from other people who have used your product, or want recommendations on how best to use it. Regardless of what roadblocks they run into, one thing is for sure: There’s no guarantee they’ll achieve what they want to achieve.

This is a gaping hole in your business. No one is better positioned to teach your customers about your product than you. No one has more data on what makes your customers successful than you. And no one stands to lose more from getting the customer experience wrong than you.

Let me say that one more time, because it’s important: Nobody has more skin in this game than you. In our survey, 80% of respondents said they’d stopped doing business with a company because of a poor customer experience. If your customers are dissatisfied, they can — and will — switch to another provider.

There are very few businesses in today’s market with no competitors. Once you lose a customer, you are most likely not getting them back. If you fail to make your customers successful, you will fail too.

Not convinced? Here’s another way to think about how to best allocate money between marketing, sales, and customer service.

Consider Minilytics and Biglytics, both with a CAC of $10 and a budget of $100.

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Minilytics hasn’t invested in a well-staffed or well-trained customer service team, so their churn rate is 30%. Three customers churn, so they spend $30 replacing them. All of the remaining $70 is spent on acquisition, ending with 17 customers.

At Biglytics, things are different. Customer service isn’t the biggest part of the budget, but the team is paid well, trained well, and knowledgeable enough to coach customers who need help.

Because Biglytics has proactively spent $10 of your budget on customer service, their churn rate is much lower, at 10% (for the record, a churn rate of 10% is terrible — we just chose it to keep numbers simple). Biglytics replaces their single churned customer for $10 and spends the remaining $80 on eight new customers, netting out at 18 customers.

A one-customer difference doesn’t seem significant. But that $10 Biglytics invested in their customer service team has been working in the background. Customers they brought on last year have seen success with the product because of great customer service, and have been talking Biglytics up to their friends, family, and colleagues. Through referrals and recommendations, Biglytics brings on five more customers without much extra work from the sales team.

This means Biglytics has not only brought on six more customers than Minilytics in the same timespan, it also brings down their average CAC to $7.14.

Which company would you rather bet on? I’m guessing it’s Biglytics.

This is why investment in customer service is so powerful. Taking the long view enables you to grow more. It costs anywhere from 5 to 25 times more to acquire a new customer than to retain an existing one.

Prioritizing short-term growth at the expense of customer happiness is a surefire way to ensure you’ll be pouring money into the business just to stay in maintenance mode.

The 4 points of leverage in the customer experience

A good customer experience goes beyond hiring support staff — it starts pre-sale. The four points of leverage you can start working on today are where we’d recommend starting.

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1) Pre-sale: Understand customer goals

People buy products to fix a problem or improve their lives — to get closer to an ideal state, from their current state.

Your job is to help them get there. Depending on what you sell, much of the work required to make your customers successful might not be done until post-sale through coaching and customer support. But if you understand the most common goals your customers have, you can reverse-engineer your acquisition strategy.

Emily Haahr, VP of global support and services at HubSpot, explains how this works:

“Your best customers stay with you because they get value from your products. Dissect your most successful customers and trace back to how they found you in the first place.

What marketing brought them to your site? What free tool or piece of content converted them to a lead? What type of onboarding did they receive and with who? What steps did they take in onboarding? And so on…

Once you have this information, you can identify and target the best fits for your product earlier, then proactively guide your customers down a path of success, instead of trying to save them once they’ve reached the point of no return.”

2) Pre-sale: Making it easier for your customers to buy

Consider whether your sales process could be easier to navigate. Today’s buyers don’t want to talk to a salesperson, or want to pay money before they know how well a product works. You should empower them to do so.

If possible, take a page out of “freemium” companies’ playbook. Can you give away part of your product or service at scale so prospects can try before they buy? This way, they’ll qualify themselves and learn how to use your product before you ever have to raise a finger. Anecdotally, HubSpot has seen the most rapid growth in our acquisition through self-service purchases.

Also evaluate what parts of your marketing and sales process can be automated. The more you can take off your marketers’ and salespeople’s plates, the better — and you’ll be giving your buyers more control over their purchase at the same time.

This change is already happening. Think about Netflix, Spotify, and Uber. All three companies disrupted industries with difficulty built into their go-to-market.

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People wanted to watch movies, but they didn’t want to pay late fees. Hello, Netflix.

People wanted to listen to music, but they didn’t want to pay for individual songs or albums. Hello, Spotify.

People wanted to be driven between Point A and Point B, but they didn’t want to wait for cabs in the rain. Hello, Uber.

Today’s biggest disruptors got to where they are by disrupting inconvenience. Hurdles are the enemy — remove as many as you can.

3) Post-sale: Invest in your customers’ success

I scaled the HubSpot customer service team to over 250 employees, and there are a few things you can do to make your customers happier (and your employees’ lives better):

Gather feedback — NPS® or otherwise

As early as possible, start surveying your customer base to understand how likely they are to recommend your product to a friend. You can also send out post-case surveys to customers whose issues your team has helped resolve.

At HubSpot, we track Net Promoter Score (or NPS) maniacally — it’s a company-level metric that we all work toward improving. This helps us:

  • Identify holes in our customer service early
  • Track customer sentiment over time — the trend of NPS is far more useful than one raw number
  • Quantify the value of customer happiness — when we changed a customer from a detractor to a promoter, that change increased LTV by 10-15%

Start small, with a post-support case NPS so you know whether immediate issues were resolved. You can build up to a quarterly or monthly NPS survey of your full customer base that focuses on their general experience with the product.

Building up a lightweight knowledge base

Self-service is the name of the game. Identify your most commonly asked customer questions or encountered issues, then write up the answers into a simple FAQ page or the beginnings of a searchable knowledge base. This will enable your customers to search for their own solutions, instead of waiting on hold to get human support. As an added bonus, it will take work off your team’s plate.

4) Post-success: Activate happy customers into advocates

Once you have happy and successful customers, it’s time to put them to work for you.

Take a look at this chart again. Notice anything interesting?

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Buyers report that their two most trusted sources of information when making a purchase decision are word-of-mouth referrals and customer references. They’re listening to your customers, not you. Use your customers as a source of referrals, social proof for your business through testimonials, case studies, and references, and brand amplification.

The key to successful customer advocacy is to not ask for anything too early. Don’t try to extract value from your customers until you’ve provided value — asking for five referrals a week after they’ve signed a contract is inappropriate. Your primary goal should always be to make your customers successful. After you’ve done that, you can ask for something in return.

Putting it all together: The inbound service framework

This methodology is a direct result of my eight years at HubSpot. We’ve made a lot of mistakes but learned even more about how built a repeatable playbook for leading your customers to success and eventually turning them into promoters.

We call it the inbound service framework.

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Step 1: Engage

Good customer service is the foundation for everything else — that’s why “Engage” is the first part of this framework. At this stage, your only concern should be understanding the breadth and depth of customer questions, and resolving them.

When you’re just getting started with the customer service function, cast a wide net. Engage with any customer, wherever, about whatever they want. Be on all the channels, try to solve whatever problems come your way, and help anyone who needs it.

Above all, make sure you’re easy to interact with. At HubSpot, we found that customers who submitted at least one support ticket a month retain at a rate around 10% higher than customers who didn’t, and were 9-10 times more likely to renew with HubSpot year over year. Not getting support tickets does not mean your product has no issues — every product does. It means your customers are silently suffering.

As your team gets more sophisticated, you’ll be able refine your approach, but this initial operating system helps you gather lots of data very quickly. At this stage, your objective should be to learn as much as possible about the following:

  • FAQs requiring customized guidance
  • FAQs that can be addressed with a canned response
  • Most confusing parts of your product/service
  • When support issues arise — do people require implementation help or do they encounter issues three months after purchase?
  • Commonalities of customers who need the most help
  • Your customers’ preferred support channels

This information will empower you to identify huge points of leverage in your customer service motion. For example, if you find that 30% of customer queries have quick, one-and-done answers (i.e. “How do I change my password?”, “How do I track my order?”, “What is your return policy?”), stand up a simple FAQ page to direct customers to. Boom — you’ve freed up 30% of your team’s time to work on more complicated, specific issues.

Empower your customer team to make noise about the problems they see, early and often, and turn their insights into action.

Are your sales and marketing teams overpromising to your customers? Your customer team will hear these complaints first. Trace the points of confusion back to their origin, and change your sales talk tracks and marketing collateral to reflect reality.

Is there something about your product that causes mass confusion? Your customer team will know which parts of your product/service are most difficult to navigate and why. Use this information to improve your product/service itself, eliminating these problems at the source.

Do certain types of customers run into issues frequently? Do they usually churn or do they just require a little extra love to get over the hump? If it’s the former, build an “anti-persona” your sales and marketing teams should avoid marketing and selling to. If it’s the latter, dive into that cohort of customers to understand whether the extra help they need is justified by their lifetime value.

As you learn more about your customers, you’ll also learn how to best optimize your own process. Identify the most effective support channels for your team and create a great experience for those, then establish a single queue to manage all inquiries.

In this stage, measure success by how fast you solve problems and post-case customer satisfaction. You can do the latter through a post-case NPS survey, which gives you instant feedback on how effective your customer team actually is.

Step 2: Guide

In the “Guide” stage, your goal is to turn your relationship with your customers from a reactive, transactional model into a proactive partnership. It’s time to level your customer team up from a supportive function into a customer success-driven organization. (The reactive part of your customer service organization will never go away. But as you grow, it should become part of a multifunctional group.)

What does it mean to be proactive?

First, it means anticipating common issues and challenges and building resources to prevent them. This includes things like a knowledge base or FAQ, as well as re-engineering parts of your offering to be more user-friendly and intuitive.

Second, it means partnering with your customers to help them get to their stated goals. Guide them through key milestones, provide tasks to keep them on track, and connect them with peers so they can crowdsource answers if necessary. Create frameworks and tutorials where you can.

It’s better to be proactive than reactive for a few reasons:

  1. It saves time, and time is money. Imagine all the hours you’ll save your support team if you can get repetitive queries off their plates. That’s time they should spend on complex, higher-level issues that could reveal even larger points of leverage in your business, and so on.
  2. It makes your customers happier. Even if you’re able to resolve issues at an 100% success rate with 100% satisfaction, you’ve still built an experience filled with roadblocks. Aim to build a world where you’ve anticipated your customers’ challenges and solve them at their source.
  3. It builds a trusting relationship. Customers may not see all the issues you proactively guard against (after all, a problem prevented is an invisible type of value), but they’ll recognize a relatively issue-free customer experience. Buyers are more likely to trust the company that rarely lets them down, over a brand that’s constantly scrambling to fix the next issue.
  4. It’s a competitive advantage. Proactive guidance takes the wealth of knowledge you have about what makes customers successful and puts it into your customers’ brains. You know what your best customers have in common and the mistakes your least successful ones make. That knowledge is a core part of what you’re selling, even if it’s positioned as customer service.

As you move away from proactive support into proactive guidance, you become a teacher, not a vendor. Other companies might be able to build a product as good as yours, but it’ll be difficult to replicate the trust you have with your customers.

Guidance is an iterative process. As in the early days of your customer organization, collect as much data as you can on the customer lifecycle, and continuously update your guidance to reflect current best practices. Pay attention to the formats and channels that work best, which issues have the highest impact for your customers once solved, and update your process accordingly.

Step 3: Grow

Happy customers want to support the businesses they love. 90% of consumers are more likely to purchase more, and 93% were more likely to be repeat customers at companies with excellent customer service.

At the same time, 77% of consumers shared positive experiences with their friends, or on social media/review sites in the last year.

Your happy buyers want to help you. That’s what the “Grow” stage is all about: Turning that desire into action.

There are three ways to activate your customer base into promoters, says Laurie Aquilante, HubSpot’s director of customer marketing: Social proof, brand amplification, and referrals. Let’s review each play.

1) Social proof

Buyers are more likely to trust and do business with companies their networks trust. The following are all different ways your customers can create social proof for your product:

  • Sharing positive experiences on social media or review sites
  • Providing referrals (more on this later)
  • Testimonials/case studies
  • Customer references in the sales process

Activating social proof is all about keeping a close watch on your customers. It’s also not a pick-one-and-done kind of thing, Aquilante says. Case studies and customer references, for example, are useful at different points in your sales motion. While you could use the same customer for both, it’s probably more useful to have a stable of customers on hand that can speak to a diverse range of experiences.

Encourage social proof by proactively reaching out to your most satisfied customers, who will likely be excited to help you. You can also provide incentives for sharing content or writing online reviews.

2) Brand amplification

When someone shares your content on social media, helps contribute content for a campaign, or interacts with your content, they’re amplifying your brand.

“To make this happen, you have to provide a ‘what’s in it for me?’,” Aquilante says. “Either create such engaging content and be so remarkable that your customers can’t help but amplify your message, or provide an incentive, like points toward future rewards or something more transactional, like getting a gift card for sharing content a certain amount of times.”

3) Referrals

Referrals have the most immediate monetary value for your business. B2C companies are masters at the referral game, usually awarding the referrer credit to their account or even monetary rewards.

B2B referrals are a bit trickier. B2B purchases tend to be more expensive than B2C purchases, and usually involve multiple stakeholders and a longer sales process. So your customer likely has to do some selling upfront to feel comfortable sending a contact’s information to you. It’s not impossible to get this right, but it’s crucial to offer your customer something valuable enough to incentivize them to do this work on your behalf.

“Get in your customer’s head, figure out what matters to them, and make sure that you’ve got a good exchange of value,” Aquilante says. “They’re offering you something of very high value if they’re referring your business, and you’ve got to offer something in return.”

4) Upsells and cross-sells

A note from our lawyers: These results contain estimates by HubSpot and are intended for informational purposes only. As past performance does not guarantee future results, the estimates provided in this report may have no bearing on, and may not be indicative of, any returns that may be realized through participation in HubSpot’s offerings.

Aside from promoting your brand and bringing you business, your customers are themselves a source of net new revenue, if you have multiple products or services. Your customer team is your not-so-secret weapon in unlocking this revenue.

In late 2017, HubSpot piloted the concept of “Support-Qualified Leads” at HubSpot. Our sales team owns selling new business and upselling/cross-selling those accounts. But our support team is the one actually speaking with customers day in and day out, so it’s just intuitive that they have a better understanding of when customers reach a point where their needs grow past the products they currently have. When a customer has a new business need and has the budget to expand their offerings with HubSpot, a customer success representative passes the lead to the appropriate salesperson, who takes over the sales conversation.

The Support-Qualified Lead model is powerful because it closes the loop of communication between sales and support, and it works — in its first month, the pilot generated almost $20,000 in annual recurring revenue just from cross-sells and upsells. Since we’ve rolled this out, we’ve generated over $470,000 in annual recurring revenue just from this model — nothing to sneeze at.

Growth has always been hard. If you’re just starting out, it’s hard to imagine ever competing with the top companies in your industry.

Customer service is the key to this equation. If you provide an excellent customer experience and can create a community of people who are willing to promote your business on your behalf, you’re laying the groundwork for sustainable, long term growth. And in a world where acquisition is hard and getting harder, who wouldn’t want that?

https://research.hubspot.com/customer-acquisition-study

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