Revenue is a KPI, Not a Goal
For business success, focus on customer success
Note: I'm trying a new format for these posts that is less narrative and more "outline" in order to streamline my ability to get information out there. I'd love your feedback.
The Challenge: As companies grow and generate more revenue, they are considered by the business press and the industry as a whole as successful. But too many large companies seem to lose sight of their original purported purpose - to provide value for their customers. Having worked for and with many of these companies, the pattern I see is clear - leadership, under pressure from their share holders and boards of directors, focus more on revenue than the needs of their customers. As those objectives trickle down, decisions are made with the goal of increasing both top line and bottom line revenue, often through new product launches, acquisitions, and cutting costs. Product teams decide which products to build or acquire based less on actual customer need and more on increasing revenue. In time, these companies can become bloated and unfocused, still performing well through their sheer size and momentum alone, but experiencing slower growth that can lead to the company's eventual demise. In extreme cases, their own customers can turn against them, feeling forgotten and ignored by a product for which they once felt affinity. These negative experiences ripple through the organization, affecting morale, increasing both customer and employee churn, and opening opportunities for disrupters.
Why Does This Happen? Many MBA books define a company as an organization focused on creating value for its share holders. I always found this definition lacking - the share holders are most often the smallest group in an organization. I prefer the term "stake holders" - that covers everyone who has a vested interest in the success of the business, including share holders, employees and customers. Share holder value is easy to measure and reasonably easy to create - it's literally just money. But I don't believe money should be the goal for any organization - it should be the reward.
Every Truly Great Company Focuses on Their Customers First. You don't hear too often about these companies - they don't find their way into the business press that often. That's largely because there's little incentive for them to be in the business press - they aren't necessarily looking for new investors. I think of MailChimp as a good example of one of these (putting aside for the moment the controversy regarding how the proceeds from their sales was distributed).
MailChimp is an email marketing company founded in 2001 during a time when many marketing folks were waking up to the need for an easier email marketing system. The founders built the original product to serve the customers of their marketing agency, but the value of what they built for their customers quickly became clear and MailChimp became their primary business. They operated entirely as a bootstrapped company, never taking on investors. They just sold to Intuit earlier this year at a valuation of $12 billion. MailChimp eschewed the "grow big fast" mentality championed by the likes of Amazon - they focused instead on delivering value for their customers, and the money they made through the last two decades and the valuation they received was their reward.
What's the Point of a Company If It Doesn't Make Money? None of this is to say that companies should forgo profits or not optimize for revenue, but there are many paths to generate revenue. The recent controversies with Facebook point to what I consider the other side of this coin - though their own internal watchdogs reported that Facebook's policies were leading to social and emotional ills for a large number of their users, Facebook's leadership consistently ignored or downplayed these signals in the pursuit of expanding their bottom line. As a result, there is a growing movement to not only abandon Facebook, but the situation is serious enough for governmental leaders to call for breaking the company up. These are all problems that, in my opinion, Facebook brought upon themselves because they were never as focused on improving the lives of their customers as they were in improving their own bottom line.
Treat Revenue as a KPI; Optimize for Customer Experience and Success. It's popular for large companies to build out "customer success" teams. But they almost always devolve into some combination of customer support and inside sales. Often, it's because those teams - like so many others - are incentivized based on customer revenue. Tools like the NPS score are supposed to offset this and act as a customer satisfaction metric, but all too often they are a "one size fits all" solution that turns out to actually fit very few situations.
The solution is to identify the key metrics within your organization that truly measure customer success. There really is no one set of metrics that every company should adopt - your organization is as unique as the segments you serve and the problems you solve. Why would you assume your metrics aren't also unique? The metrics we most frequently use - ARPU, LTV, churn, ARR, etc. - are generally derived from accounting metrics. They are important KPIs, but they belong further downstream from the concerns with which the executive leadership team should really be involved. The upstream metrics should indicate whether the product actually fits the right needs in the market (adoption rate, share of voice, awareness), whether it's easy for customers to adopt (time to live, average time through the customer journey / funnel, ratio of support calls against total customer count), and whether it continues to actively serve their needs (daily/weekly/monthly active users, average customer lifetime, renewal rates, ratio of upsells to total customer counts).
The Bottom Line: To build a truly great, truly lasting company, optimize for customer experience and customer value rather than optimizing for revenue. Treat revenue for what it really is - a reward for building a great company that provides real value and a KPI to measure that success.