The current economic turmoil resulting from the global health crisis has placed a spotlight on the actions businesses may need to take to retain customers. By concentrating on minimizing churn, many businesses hope to weather the current economic downturn, so they can return to a sustainable degree of profitability in the long run. In order to better understand this concept, as well as related ideas, we turned to information from Shasta Ventures. The venture capital firm has been releasing useful educational resources since the pandemic began to help business leaders better navigate the road ahead.
One of the reasons Shasta Ventures makes for a useful resource in these matters is the vast institutional experience of its team members. This experience spans multiple economic downturns and encompasses a variety of insights directed at helping businesses return to some degree of normalcy as soon as is possible. One of the leaders in this regard has been the company’s Co-Founder and Managing Director, Ravi Mohan. Mohan’s experience with the firm spans the 2008 financial crisis, providing him with an understanding of some of the skills required of tech leaders to navigate the troubling economic waters in which we now find ourselves.
Another leader at the firm with experience in these matters is Jason Pressman, also a Managing Director with the company. Before joining the venture capital firm, Pressman was known for his role in developing Walmart.com into one of the world’s leading online retailers. His time with that company spanned the 2001 dot.com bubble, an economic crisis that had a profound and lasting impact on the world of tech. Having joined the venture capital firm in 2005, he also worked alongside Mohan to help navigate the company through the 2008 financial crisis. He now brings his experience from both of these time periods to his current work acting as a thought leader and providing advice for businesses struggling at present.
A Look at Churn
One of the ways in which that struggle is manifesting is through a reduction in customer base at many tech companies as market demands and priorities shift. This metric, known as customer churn, is often defined as the rate at which customers stop doing business with a company. For subscription services, it is commonly expressed as a percentage of subscribers who discontinue their service during a set period. However, churn is also a relevant metric for companies that are not subscription-based as it gives an idea as to how demand is changing for a given product.
Churn is especially relevant at present as a number of companies are seeing the use of their offerings drop in relation to reduced customer need or a reduction in the number of customers who can afford a product or service. As we’ll see, this number can be a gateway to an in-depth analysis as to how a business can evolve to better meet customer needs. These types of actions can be useful in any economic context, but at present, they can be a powerful resource for staving off disastrous long-term prospects.
Information from the Firm
Shasta Ventures recently explored this idea in greater detail in a webinar entitled “Analyzing and Managing Churn During Economic Downturns.” The online event brought together three prominent team members from the firm — Mohan, Issac Roth, and Michael Lock — to help businesses explore how a look at customer churn can be critical in this trying time. In fact, one of the reoccurring themes of the informational session was the idea that churn may need to be the top priority for business leaders moving forward. “It’s always been the case that keeping existing customers is easier than acquiring new ones,” said Lock on this subject. “And that rings even more true during these times.”
One way that the team members suggested looking at churn was through the lens of how it showcases a customer’s experience in the current economic environment. By carefully analyzing the metric, businesses can better understand the day to day reality their customers are experiencing and the pressures they are under in their own business endeavors. Through a greater understanding of these ideas, businesses can be better prepared to react to customer needs and can adjust their own offerings accordingly.
Much Needed Perspective
Part of the above analysis rests on businesses taking a real and honest look at the ways in which their offerings are benefiting customers. One concept the firm refers to as a helpful rule of thumb for this analysis is known as the “toothbrush test.” This refers to the idea that if a customer is not using a service at least twice a day, they probably don’t need it. This type of flagging usage can be a sign of trouble ahead for a company and can ultimately lead to higher churn rates as customers look to cut the fat to make their own operations leaner and more cost-efficient.
One of the possible methods suggested to avoid such an outcome was to check in with customers regularly. The panelist noted that “This is a time where you want to be communicating with your customers.” By doing so, companies can work to anticipate customer needs and help to make their products and services more indispensable by directly reacting to market demands. This can not only help to increase usage, and therefore contribute to lower rates of churn, it can also help to keep a business afloat through the duration of this economic downturn. Ultimately, that type of focus on long-term resiliency might spell the difference between success and failure over time.
The global health pandemic caused by COVID-19 has thrown the economy into a state of turmoil. While experts aren’t sure how long this downturn may last, it’s clear that many businesses are struggling to navigate these new waters at present. Turning to voices of experience during these difficult times can help improve a company’s chances for weathering this storm. The above information on churn, pulled from insights from Shasta Ventures, is just one useful example of what can be gained from this type of experience. Look for additional information from the firm and others in the field who can provide context for this downturn and some business practices to be enacted to help promote a more stable economic outlook in the future.
More information about Shasta Ventures at https://www.bloomberg.com/profile/company/3556502Z:US