Ep. 112 | How to manage through the COVID-19 crisis
**SPECIAL COVID-19 EPISODE** This week Gregory Shephard, serial entrepreneur, angel investor and creator of the BOSS business operating system joins Allison Hartsoe again in the Accelerator. Greg explains how entrepreneurs can manage through any crisis including the current COVID-19 crisis. His process adapted from the military includes 4 steps: Assess, Stabilize, Seize the Opportunity, Return to Deliberate Operations to ultimately come out on top.
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Allison Hartsoe: 00:00 This is the customer equity accelerator. If you are a marketing executive who wants to deliver bottom line impact by identifying and connecting with your revenue generating customers, then this is the show for you. I’m your host, Allison Hartsoe, CEO of ambition data. Every other week. I bring you the leaders behind the customer centric revolution who share their expert advice. If you are ready to accelerate, let’s go. Welcome everyone. Today’s show is about managing through the current COVID-19 crisis, and to help me discuss this topic is Greg Shephard. If you’ve caught our last show, you might know that Greg is a serial entrepreneur, author, speaker, angel, venture capital investor, and so much more with a legacy of building and running sustainable growth businesses. He has also the creator of the BOSS methodology, which stands for business operating support system. We discussed that a lot on our last show, but in this show, we’re going to focus a little bit more about the current state of the business. Current COVID crisis. Greg, welcome back.
Greg Shephard: 01:09 Thank you. I appreciate it.
Allison Hartsoe: 01:10 I think many companies are staring wide-eyed at the global financial market chaos. Perhaps they’re looking at additional layoffs, supply chain disruptions, and continued suppression of consumer spending. It’s kind of a mess. Are there any silver linings in this mess?
Greg Shephard: 01:29 There can be. It depends on how you look at the scenario. I mean, every problem is an opportunity if you get the right lens on it and look at it from the right angle. With this particular crisis, what I did is I got with a few people from the military actually. Yeah. I talked to a captain in the military who was in charge of a fleet of the most sophisticated warships, and I asked him as well as the Navy seals in the air force captain level people. How do you handle these crisis scenarios? One of the things that I learned about is war planning and what they call war gaming, and then after learned about that, I said, okay, well, let’s say that the companies haven’t done war gaming or something in that scenario creates a crisis that were unknown. How do you deal with that?
Greg Shephard: 02:13 And I studied that. And then I figured out that if we were able to sort of take this and conform it to businesses, we could create a solution for businesses to follow, to try to get themselves from sort of crisis and panic into some sort of normalized way of doing business. And so I came up with this thing with my partner Randall and guy named Scott Tate, who’s a captain in the Navy or a retired captain in the Navy and also executive director over at the university. And we created a crisis journey that everything starts out with this crisis journey. So it starts out with a call to action and the call to action is the COVID-19 scenario. Then it goes from the call to action to meeting the mentor, somebody who’s been there before. And so I’m your mentor in this journey, and I’ve been through the 2008 recession.
Greg Shephard: 03:00 I was through the dot-bomb tech bubble of 9 11, and so this would be my forest sort of run through this.
Allison Hartsoe: 03:06 An experienced mentor.
Greg Shephard: 03:08 Yeah, I mean, it was a battle. These other things that were, I mean this is different because the virus has just shut things down and triggered on a market correction, but these other scenarios had their own, you can’t say one was worse than the other, it’s just the other scenarios had their own sort of specialty sort of virus, if you will, in terms of how it sort of crept in and then just kinda took it. I mean, I woke up one day, I had this ad tech business going, and I woke up one day and the next day, 50% of my clients had canceled during the dot-bomb. So I had 38,000 square feet. I had to lay off people and by groups in these large conference rooms and it was a disaster, you know, it was just really a nightmare.
Allison Hartsoe: 03:44 Painful.
Greg Shephard: 03:45 It’s a horrible experience. Like really, really horrible. And in a market where they couldn’t even get another job. So you just feel like you’re ruining their lives and you have to do it because if you don’t, then everybody goes down. So that’s meeting your mentor. And that’s sort of what I would consider the second stage of this process. That’s just getting advice, like seeking advice from somebody that’s been there, and then you get to crossing the threshold. And so this is where you sort of act on the mentor’s advice and then you get the reward, and this is where your business emerges as a better business. So in that war story, I just told you after that happened, it really made me pause and go back into my business and really do some evaluations where I was having conversations with my customers, and I was like, is this thing that we’re doing?
Greg Shephard: 04:29 Is this really valuable to you? How valuable is it? And I ended up redesigning the whole business because I moved it back to the essential to the things that had the highest value, largest impact with the lowest effort. And that’s the reward part of the journey. And then you get into the breach torn return, the return to normalization. This is where you go back to where you were back to your Northstar and back to doing business as usual adjusted as a new company. So when you look at that journey, so that gives you a sort of respective of the whole journey, right? Go through. So let’s break it down into the phases. There are four phases of crisis management. There are five stages of BOSS. But what I did is crisis this object, this operating system module that we built, sort of you slide it in when you have a crisis and then it crashed your business and then you put it back on the shelf. So it’s sort of like a tool.
Allison Hartsoe: 05:17 In the new normal.
Greg Shephard: 05:18 Right? Exactly.
Allison Hartsoe: 05:19 So basically what you’re looking to get out of this is how to make your company better, faster, stronger.
Greg Shephard: 05:24 Well, I would say that it’s more how to make your company adapt to a new world, to a new environment. I mean, it makes it stronger and faster for the new environment. I mean, the focus is to be able to correct course when the course needs to be corrected. So I’ll give you an example. The other day my wife was going to the grocery store, and there was across the street, there’s this place that usually only markets to restaurants sells food to restaurants, but the restaurants aren’t open right now, so they’re not selling the food. So they started opening up the general public and selling all of their food, like Costco, big drops of things to the general public at the same price as they would sell to a restaurant.
Greg Shephard: 06:02 So that’s an example of somebody that said, okay look, we’re, we have a bunch of food that’s going to go bad if we don’t sell it, we’re going to lose this money. Or we can pivot and change our business model temporarily to deal with this scenario and then go back to this as normal. Or maybe they don’t change their business model, maybe it works. And then they keep the business model that they have after the crisis. But that’s an example. So you have other scenarios where a lot of the big box stores and stuff are like, Hey, just drive up and we’ll bring it out to you. So you have these things requires a process, which is what this crisis management operations process is to get there to get to this new business model.
Allison Hartsoe: 06:38 Got it. So let’s talk about those four phases of the crisis management that you talked about, but could you also lay in a little bit of like these examples are great, but I’m also seeing that there are certain things that are happening at this point in time that might be unique that businesses maybe hadn’t seen before. The thing I always love is customer equity and connecting to customers better. Then maybe there are other things that were already moving in the world that this crisis just brings to light.
Greg Shephard: 07:09 Yeah, I will actually, and I’ll actually even give you a case study of one of my portfolio companies that we actually put this in play for and it worked. So I’ve actually put a case study together too that we can use as an example. So I’ll go through these four stages, and then we’ll dive into a couple of very basic things, and hopefully this helps everybody. There’s also the website. I put together a page and the collaterals there you can put in your email, and we’ll give you everything you need to get through the process.
Allison Hartsoe: 07:35 Do you want to mention that URL again now. We mentioned that briefly in the first episode.
Greg Shephard: 07:37 Sure. It’s Gregoryshephard.com/covid19. So g r e g o r y s h e p h a r d.com forward slash Covid19.
Allison Hartsoe: 07:49 Thank you. We’ll include that in the show notes. Okay, so back to the phases.
Greg Shephard: 07:53 So the first stage is the initial assessment. So these are the four phases that the military goes through, adjusted for business. So this is really good stuff here. So the initial assessment in damage control is what are the immediate and potential long-term impacts of this thing to your business and your market overall, it tells you the gauge of what you need to change to adjust to, is it a permanent change, temporary change, is it a market change? Is it just specific to your business and so on? And then what can you do to slow the damage? And then, what help do you need on your team and with your stakeholders, and what stakeholders do you need to consult with in order to get an assessment of the situation?
Allison Hartsoe: 08:32 I’m getting nickname this first phase inhale.
Greg Shephard: 08:34 Yeah, I mean, it really takes a minute to pause and say, okay, let me look at what’s going on here.
Greg Shephard: 08:40 The second thing is this stabilization and crisis pivot? So how can you extend your runway? So cash, customers, pipeline employees, all of this stuff, whatever you consider your runway, how do you extend it to buy yourself enough time to make the, and then what part of your existing business is still viable in the crisis and after the crisis? Because, like I said in my analogy, you know the example that I had, some of the stuff wasn’t good even after it just needed to be changed. And then how can your existing assets and talents be used differently to generate revenue now in new markets, new opportunities that have developed out of this crisis. Problems are opportunities. In most decks that I see, most of the incubator accelerators are in entrepreneurs. They always have, here’s the problem, it’s a whole slide. So here we’ve got a huge problem.
Greg Shephard: 09:30 That means that there’s a huge opportunity, and you don’t have to think about what technologies you need to help.
Allison Hartsoe: 09:35 Yeah, perfect. And so if the first stage is kind of pause and inhale, then the second stage is stabilize. And the third stage is what you were just saying about seize the opportunity.
Greg Shephard: 09:45 Now you get in, and you start seizing the opportunity. So what aspects of your business sector or market are likely to see permanent change? I’ve been listening to a lot of stuff in terms of what happens when these sort of things happen. And an analogy that the guy used was when the recession happened, the major recession, the big depression, those people, they never changed. And so I had a grandma, and my grandma had always tons of food, and she was always super frugal regardless of how much money she had because of that recession never left her mind.
Greg Shephard: 10:14 And that’s the reality of scenarios. And it’s the same thing here. So you have to start thinking to yourself what aspects of your business market or sector are likely to be permanently that way like you’re going to see a lot more kids learning from home now because they’re learning how to do it. I mean, it’s evolving as we speak. You’re going to see a lot more home medical care and people working from home. A lot of companies are starting to learn. Hey, we can do this. There isn’t a lack of productivity or whatever, so there’s going to be some things that are going to change.
Allison Hartsoe: 10:41 Do you think consumer demand is going to be one of those permanent changes as well, or is it going to be more of a bounce-back like nine 11.
Greg Shephard: 10:48 I don’t think it’s going to be. I think there’s going to be a false start. In other words, there’s going to be some pent up demand. People are all stuck in their homes and stuff, and they’re going to open things up, and then people are going to just flood the streets. I got to get outside, I got to go to the bar, whatever, and they’re going to go to the mall, and they’re going to do that sort of stuff. My fear is that they do it too early and then we have a second wave of the virus, but if they do do it and it’s not too early, and everybody goes out, you’re going to see a jump from that. It’ll normalize back down, and I think during this period of time, everybody is learning how to be home or learn how to entertain themselves and they don’t have to go out to have distractions from their life. Maybe they are dealing with these distractions.
Greg Shephard: 11:28 I think there’s a lot of things to think about when you talk about seizing the opportunity in what this new world is going to look like. There are new pain points that this crisis has created for our customers that you might be able to solve. Like if you think about it and people are gonna be a little more bashful about going out and the sort of thing. I mean, think about right now, all of the people that are shipping products like Amazon is crushing it right now. So you have to think about there are opportunities right now as we speak, that people are taking advantage of. Now, once you figure out and you’re able to seize the opportunity, then you can go into stage four which is returned to deliberate operations. This is where you’re normalized. But with those changes, with phase one, phase two, phase three in mind, you’re now normalizing your business to that adjustment.
Allison Hartsoe: 12:12 The new normal.
Greg Shephard: 12:12 Right, this is the new normal, and now you have what conditions must be met in order for you to exit the crisis. And then how will you assess what the new normal is for you and your business. Once you have that, and now you can return back to normalization, it really helps things out. Now I want to go into something that you have a circle of concern and the circle of influence. So what is a circle of concern or things that you have no control over and it’s circle of influence or things that you do have controls? So what’s in your box and what’s outside of your box. And so you have these, the scenario pre-crisis, your circle of concern is a big circle inside of that as a smaller circle, but about half the size and it’s like a circle of influence. So you can see that these two are proportionately, your circle of concern is always going to be larger.
Greg Shephard: 12:58 But circle of influence is pretty good. You would have the ability to influence your future pretty deeply. When a crisis happens, your circle of influence becomes very small, and your circle of concern becomes really large. So you’re trying to fix that. You’re trying to make your circle of influence larger to fix that. And that’s what those four stages do.
Allison Hartsoe: 13:15 And you have this great checklist too, which is part of the webinar link. You can see it in the webinar. There’s probably 20 items on each list of circle of influence versus circle of concern. Would you say?
Greg Shephard: 13:27 Yeah, there’s about 20 items. And this is for this particular scenario, but this is our list that we did. This is a real scenario. So prioritize the backlog differently, blah, blah, blah. So you have the circle of concern items, the things you can’t control, you have to be aware of them, but you can’t control it.
Greg Shephard: 13:43 So you have to wait for that to happen. But you don’t want to wait blindly. You want to wait for them to happen knowing that they’re going to happen. And then the circle of influence are things that you can do something about right now.
Allison Hartsoe: 13:52 You point out on things we can’t control customer lifetime value. The things we can control CAC, customer acquisition costs. I think that’s a good illustration. Yeah, exactly. And you’ll see in the case study how we acted on that. So the next thing is where you say, okay, now you’re back to normal, and you have to sort of walk through this development process, this initiative development process. So you start out by isolating the initiative. We just went through all of that. The next thing you do is you need to say, okay, now you need to do a SWOT analysis on that scenario.
Greg Shephard: 14:21 And SWOT just stands for strengths, weaknesses, opportunities and threats. And so let me make sure that people understand this thoroughly. A lot of people don’t understand what that means. Strengths and weaknesses are your circle of influence. This is in your world, your strengths, your weaknesses and threats and opportunities are circles of concern items. These are the threats outside of your circle, outside of your control and opportunities outside of control. It’s important to look at the SWOT analysis correctly so that you, when you’re doing it, you’re not thinking, you know, this is all in my world. And the reason why this SWOT analysis is done that way is because of the circle of influence in the circle of control. Now you have determined your mission. So in the BOSS model, you have missions and objectives and key results. So now you have done your SWOT, and you understand what you’re dealing with.
Greg Shephard: 15:06 You’ve got your new marching orders in your checklist, and you know whether or not you can accomplish these cause you’ve done a SWOT, and now you go, and you do your missions, and your mission is from X to Y by date. Your objectives roll underneath the mission, and the key results are underneath the objective. So basically, the key results are the actual task items. The objective is what is the goal, is the roll-up of those task items. And the mission is a roll-up of those objectives. And one mission is for one functional area, right? So one team or functional area, whether it be sales and marketing, product and technology, shared services, or service delivery.
Allison Hartsoe: 15:42 Okay, so I’ve got to push you on that one for a sec because if one mission is for one functional area, what if a customer is your mission.
Greg Shephard: 15:49 Then that’s sales and marketing. So your businesses are separated into those functional areas because they align with the value drivers. So really you have a CEO at the top, and you have two wing people. So if the person on the left of the wing is service delivery and sales and marketing, she is responsible for bringing in the marketing and then selling that and then servicing them. So she has to eat her own dog food. A lot of times people disengage these things. And then what you have is you have the marketing person driving in leads. The sales person’s complaining about leads. The salesperson closes deals, and the service person closing is complaining about the deals that the salesperson closed. So if you put these all under one person, then you have the ability to control the flow all the way through. And those things also aligned then with the value drivers, right?
Greg Shephard: 16:36 Growth, margin, retention, growth and retention, our sales and marketing and service delivery. So now, on the other side, you have product and tech and you have shared services, which is essentially operations. Those are margin functions except for product and tech, which rides across everything. So now you have those missions and those objectives out on those functional area leaders, and you move into prioritization because now you have this big list of things, and you don’t want to like they’re not all equal. And we went over this on the last podcast, so you separate urgent and important, and impact versus effort and then you go into execution. And so that sort of drives it to the next level.
Allison Hartsoe: 17:11 Picking it up. Okay. So you’ve got this process of getting to execution within a crisis. What are some examples or maybe a case study that you’ve seen somebody work through to come out a little bit better on the other side?
Greg Shephard: 17:25 So I have a case study. This is a business in my portfolio. It’s in the industry is a high tech SAS company. Their revenue is around 2 million in ARR. They have ten employees, their product and services automation, they automate a process, and the sales cycle is typically about 60 days. And so the situation here was social distancing that caused the workforce to abandon the field as a result of the social distancing. And then, customer acquisition costs increased. So the way this business operated is mainly through demand generation that was done through these associations trade shows. So they’d go to these trade shows and show up and then that was how they got a lot of their demand generation. It’s just you need for this particular industry. So then you got social distancing. So now all that dries up so you could see how that business is sitting there going, Holy shit. Like panicking. Like what are we going to do?
Greg Shephard: 18:14 And all the people are now working from home. And so the deals stopped closing. So this is what we did. We leveraged the boss scenario, crisis management system that I’m going through here, and we developed a process to dimension out the problem and determine the new course of action, and the output of the process resulted in two key initiatives. This is the other thing, you don’t want to have a lot of key initiatives. You just want to have three to five at the most. I mean, this is an example of two for this functional area. This is obviously sales and marketing. So number one deal triage. So we maximized existing opportunities to take the pressure off of new pipeline development because we dried up on the trade shows, we couldn’t do that anymore, and it was a high contributor to our CAC, our customer acquisition costs.
Greg Shephard: 18:58 So then, the second key initiative was repurpose the event budget that we had into redeployment into digital marketing and demand generation for future initiatives. So this is what happened when we deployed these two strategies, and we went through the process that I just explained. I’m going to skip all that, but this is the outcome of it. The customer acquisition cost was reduced by 20% by redeploying the budget deal triage resulted in four net new deals that would have originally closed in three or four months out. So we were able to speed it up cause we looked at the deal pipeline. We’re like, okay, the pipeline is going to dry up. Let’s see what we can do to close the deals that we have in the pipeline as fast as possible before they go away permanently. And that was the second of the two results. The first one was, all right, let’s redeploy the capital that we had in these trade shows into a really heavy demand generation cycle.
Greg Shephard: 19:48 And when we did the customer acquisition cost case study, this is a good example of a SWOT. The strengths were existing LTV to CAC ratio is three to one. 60% of sales were virtual, so we could reduplicate that process once the pipeline was in, the sales happened over the phone, but the leads were coming in through trade shows, and we had an existing infrastructure. So we could run a 100% virtual workforce even though people were in offices. We knew we could do it. The weaknesses were large clients required onsite sales calls, like they wanted these people to show up and really meet them in person.
Allison Hartsoe: 20:22 Previously required.
Greg Shephard: 20:23 Right? Previously required and our current demand generation process was around industry events and conferences. So we had to redesign that. So then we said, okay, what are opportunities? We could be the first to market with a virtual pros, gain market share from our competitors.
Greg Shephard: 20:37 We could reduce the cost drastically by not depending on events and conferences, which are really expensive, and a new virtual model could positively impact bottom line post-crisis because of that cost that I just explained, like reducing the CAC marketing sites specifically. So then we said, okay, well, what are the threats? Competitors have more resources than we do, and they could hurt us, right? Some of the event contracts may not allow for a refund. The money’s committed and we may not get some of that money back, and the employee morale could be damaged through this process. Redesigning company usually has feared. If you involve the people in the process of redesigning it, you know in this crisis management process, a lot of times that sets aside the fear because the fear is a result of not knowing and if you involve people in the process, sometimes they feel like, okay, I know what’s going, they feel better and then you can move forward.
Allison Hartsoe: 21:28 Yeah, Certainly understand that.
Greg Shephard: 21:29 Yeah, so I mean a lot of this stuff is better explained. If you go to the page and register, you’ll be able to see it in person. You get templates and stuff, but I can try to explain the way that this looks. So the functional air view, we’re looking at a spreadsheet. The first column would be the functional area, so the functional areas, sales, the description of that functional areas of that particular mission is to reduce customer acquisition costs. The due date was four 15, and the percentage to goal was 10%, meaning were 10% to the goal. The first objective was deal triage. The second one was repurposing the event budget. So you can see how that aligns with what I just went through. And then you have a due date on each one of those in a percentage to goal. And then there were four key results.
Greg Shephard: 22:08 Audit existing pipeline update the wind strategy form, increased frequency of the deal desk, pricing, deal discounts and analysis on what that would do to the bottom line. Those steps were the key results. If those things are done, that objective is done. If all the objectives that are done, then the mission has done and you do a new mission. So the next level was, okay, what are we trying to accomplish now with this whole objective, it’s from X to Y. So from zero deals to 69 deals from 0% complete to a hundred percent complete from one week to three weeks from 0% to 100% those are the from tos. And then we did an urgent and impact, which gave us a priority. So now we could tackle these things in a priority. Now that’s ready, aim, fire, and the results of this really, really impacted this business.
Greg Shephard: 22:54 Now, I’ve done this with all my portfolio companies now, and I have to tell you that the reaction of the management team and these different businesses when this happened was sheer panic. Just like, Oh my God, we’re going to go out of business. I heard things like, we’re done. This is over. It was nice working with, you know, you hear these things, it’s just like end game kind of stuff, and now people are reacting completely differently. Right now, people are sitting there going, man, we are going to really get ahead on this. We’re going to be able to beat our competitors. They don’t have this advantage. So the competitors are sitting there acting like these guys were acting, and our companies are now stepping ahead. In 2008 there were a lot of businesses that came that were able to frog leap over the bigger companies and their competitors because of how they handled it. So I’m really serious when I say that this is an opportunity. It’s not what happens. It’s how you react to what happens. And right now, it is a bad scenario for humans, but it’s a good opportunity for business. It really is. And if you react accordingly, you can get ahead of it. And by doing so, you can make sure that maybe not so many people lose their jobs.
Allison Hartsoe: 23:57 Which is a great goal. I would ask that in a longer-term crisis like this one. How do you know when you need to circle back to this again? Like the initial hit is one thing, but then there’s multiple waves or different things that continue to happen that may not be as clear cut. How do you know when you need to come back to this?
Greg Shephard: 24:16 If you do the crisis management process and then you go in and you design your missions, your objectives, your key results, and your priorities and delegation. And then, after that, you put in your KPI. So your KPIs, how are you performing, how is this change performing up against expectations, and those should give you leading and lagging indicators. So a lead indicator is something that causes change, and a lagging indicator is lagging in nature. Meaning when it hits, it’s already too late. Like financial numbers are lagging, and most people operate their business on financials. Well, that’s like driving down the freeway, looking at the rearview mirror.
Allison Hartsoe: 24:52 We always say that about CLV versus RFM.
Greg Shephard: 24:54 Yeah, I mean it’s just ridiculous, right? So if you are looking at what I just went through is changing the future. So they are leading indicators, they are all leading indicators, and the KPIs should be leading indicators.
Greg Shephard: 25:06 The big flaw with most people when they design KPIs is they design them after lagging indicators. And the bottom line is that lagging indicators are the financials in the end and it’s the only one. And that’s because a leading indicator for sales is leads, which is a lagging indicator for marketing. So this thing changes shape as it goes through the funnel. What’s lead, what’s lag, they change shape as this journey happens. But the only thing that doesn’t change state are the financials that is end-state when they’re in. They’re in. So then what you really have is you have leading and lagging indicators kind of going back and forth. And so that’s how you know when to make another change. So I suggest that people do new missions, do what we call the MOKRM, which is mission objectives, key results and measures. Do a new MOKRM every three months we do ourselves, we go into boss capital firm, and we will go in and redesign everything ourselves.
Allison Hartsoe: 25:58 Do you think that process should be even faster in the crisis type? I mean, like you look at exponential reports of deaths and new cases. Does that mean that business has to operate faster?
Greg Shephard: 26:10 Yeah, and maybe in this scenario, you do it every month. Common practices every.
Allison Hartsoe: 26:14 Or six weeks.
Greg Shephard: 26:15 Yeah, maybe every month or every six weeks. I mean, that’s individual for that business and how fast that business moves. Like so we have a business. This business in the case study as an example is a slower moving business, and because of that, if we did it more often, we would be ahead of the industry. Meaning that the weaknesses that you have, your strengths and weaknesses versus your opportunity to threats, the threat is that you move faster than your industry. And I faced this before where I created technology that was ahead of everybody and then I had a really hard time selling them because they didn’t understand that they needed it. So then I had to sell that what the problem was, sell that they needed it and then sell my solution.
Greg Shephard: 26:53 And so you don’t want to be too far ahead because then you’re doing work basically training all of these customers to go with your competitors when they come up behind you. So it’s kind of like you have to be very stage-appropriate with, you know, I’ve done that where I’m like, Oh, we’ve gotta be way far ahead, and you get so far ahead that you’re spending half your time educating people as to where you’re even at. So you know, you just want to be just ahead enough. You want to think way far ahead, but you don’t want to release things or change your business to activate that stuff until it’s appropriate.
Allison Hartsoe: 27:23 That makes perfect sense. And I know since we’ve been evangelizing customer centricity for the last four years, I can definitely feel that. But I want to circle back to one of the questions in your case study or something I happened to notice the case study is about customer acquisition costs and one of the things that you highlight as a strength to see existing LTV to CAC ratio of three to one. And so my question has to do with for this business because they had a strong LTV to CAC ratio, it makes sense for them to focus on customer acquisition costs. But in a traditional, like the way everything was before the pandemics, most companies focused on that without a good sense of the LTV behind it. So would you encourage companies to understand that LTV to CAC first and then try to figure out should they really be focused on retention, or should they be focused on acquisition or something else?
Greg Shephard: 28:18 Yeah, so we had two focuses. You could say it’s retention, but it was retention of the current pipeline. So we didn’t want to lose what was in the pipeline. So we had one focus. It was a sales retention process, not a customer retention process, meaning new sales, trying to keep what’s in the pipeline from running off. So we had that and then we had getting new deals in the door. Those were our main focuses for sales as a functional area.
Allison Hartsoe: 28:42 But that’s because this company was strong in the retention of business over time. If they had only been retaining customers for let’s say 12 months instead of 36 months, then would you have encouraged them to focus on the longterm retention of existing customers instead?
Greg Shephard: 28:58 Yeah, always. Retention is the King of Kings and the queen of Queens, and the reason why is because when I go back to the conversation that we had previously with regards to a multiple, if you think about the cost of the repayment period, if you buy a business, so if I’m going to go in and buy another company to merge into my company, what I’m looking at is if I pay 10 X top-line revenue, how do I get my money back and how long is it going to take to get my money back? If the company that I’m buying has 90% retention, that means nine out of 10 businesses that are in the portfolio will continue paying me. Then that gives me a sort of predictability and forecast of how long it’s gonna take. It’s one of the drivers. And along with growth, so growth says how many of my existing customers that I’ve already retained are going to buy this product.
Greg Shephard: 29:42 And then what is the retention rate on those people? And then margin says, can I do it at scale with a profit? So anytime retention in a SAS company specifically, but in most companies is the most important thing. And the reason why is because you’ve already spent the money retaining and acquiring that customer. And so you don’t pay for that customer until you’ve retained them for a certain period of time. So for example, if it costs you, let’s say $10 to acquire a customer, and the customer is on a month to month agreement, and they cancel after the first month, you not only lost that customer, but you lost the amount of money you invested into that. Not to mention the distraction. So if you want a higher return, this is where the LTV comes in. If you want a higher return and you sign a 12-month contract with that customer, then you stand the benefit $110 for the year outside of the cost of acquisition. So you have two alternatives there. Retain the customer and extend the lifetime value. So either increase the amount of money you make or increase the amount of time you keep the customer, which is why the Northstar is so important when you look at acquisitions because that’s what they’re doing. They’re looking at your product to do that for them to leverage them.
Allison Hartsoe: 30:49 Yeah, which is why I always feel like we’ve been a bit bamboozled when you have something like blue apron that goes out to market, and it looks like there’s a lot of demand, but it’s just the customers, at least according to the analysis that Dan McCarthy did, the customers that were acquired initially had a decent lifetime value, but as they churned through more and more customers, the amount of time that people stayed went lower and lower and lower. So they just kept pouring gasoline on the acquisition because they’re trying to go public. So they ended up with this high number of people who are coming in. But basically, it’s like AOL mailing you the little D, the CDs, it’s just getting them in at any cost.
Greg Shephard: 31:32 Yeah and I mean retention is a fundamental, and we could do a whole podcast on just retention, but retention is a fundamental principle because when I look at businesses, and they go, Oh, we have 90% retention. And I’m like, Oh, okay. So what is the contract period? And they go 12 months, and I go, okay, how many cycles have you gone through? And they’re like, Oh, we’re only two years old. So we’ve gone through two years. So really that customer has only had one reapp. So that 90% retention rate is on one reapp. So it’s on one-lifetime value, one cycle. So do you trust that 100%, and this is where you go back to if you’re going to sell your business, you have to have this over time because you can only trust what you know? So they’re going to say, Oh, your business has been tracking this for two years. You’ve got one cycle outside of the first contract, and you should have like five cycles. And they’re like, Oh, okay, I can trust that. So part of it is that if you have a month to month agreement, you have a monthly cycle. If you have a three-month agreement, you have a three-month cycle and so on.
Allison Hartsoe: 32:24 But in D to C businesses, it’s a little bit cleaner because either the customer buys or they don’t. And so you have to prove it every time to keep that retention.
Greg Shephard: 32:33 Yeah, so cash-based versus accrual-based companies, cash-based companies like retail and stuff like that. You could have a larger point of retention over time.
Allison Hartsoe: 32:42 Got it. Well, the structure for how to manage in a crisis is really good. Let’s give the URL of where people can see the, and I think it’s called a crisis management toolkit that they can actually download.
Greg Shephard: 32:52 Yeah, so it’s Gregory shepherd.com forward slash Covid19 and when you go to the website, also just hunt around and look for the other stuff. There’s a lot of stuff in there, and my goal is to help, and I produce articles and videos and instructions and templates and stuff. I mean all the time. So if you get on the mailing list, you’ll get updates of when that happens, and then you can download stuff like this crisis management toolkit.
Allison Hartsoe: 33:16 Yeah, which is just great to have a mentor like yourself who is spreading out to everyone to say, Hey, here’s something I know to be true. And along those lines, are there any final words of advice you want to give entrepreneurs as to how to feel right now?
Greg Shephard: 33:30 I think you should feel inspired. Here’s the thing. I was talking to some friends of mine that are heavy in the stock market, and they’re really bombed out. And then I talked to some other friends of mine, and they’re like really excited. The difference is how they saw it. Those that are in the stock market now saw their portfolio values dropping dramatically. Those on the other side saw it as them being able to buy stocks on sale. So it has to do with the lens that you put on. You have to really think to yourself, where are the opportunities? This thing has a lot of opportunities attached to it. It’s the exceptional strong entrepreneurs, and those that will survive that recognize and can take advantage of those opportunities, and that process that we did on this call is supposed to help people go through that process. It’s supposed to be an aid to help you through that.
Allison Hartsoe: 34:16 Almost like creating a new reality for yourself.
Greg Shephard: 34:18 It definitely, I mean we have a new reality whether or not people, things are not going to go back the way they were. It’s not like we’re going to wake up one day and everything’s going to be the same. That will not happen. It just won’t happen. So trying to understand and forecast what changes there will be is part of the process and then adjusting to that new reality as part of the process. And then you can just go forward. Just like after every recession before us and every recession after us and every crisis before us in every crisis after us.
Allison Hartsoe: 34:44 How long do you think this will last, Greg?
Greg Shephard: 34:46 According to the stuff I’m reading. I mean, you know, I’ve heard people say 18 months, I’ve heard people say six months.
Greg Shephard: 34:52 I think that the opportunity here is not going to last very long. I think that people are already really digging in and realizing that they have to pivot and change and the others are dying. So I think that how crowded the opportunity space is for your business is going to be, I mean that by itself as an opportunity, a lot of the competitors falling off if you can make it through it, you already have an opportunity and advantage. So it’s hard to say. It really is. I mean, I look at, as an investor, you have two types of businesses. You have businesses that saved money and businesses that make money and the businesses that saved money solve a problem. And the businesses that make money take advantage of an opportunity. So something like Facebook would be taking advantage of an opportunity, and something where you’re actually saving money on a monthly basis is what we’re after right now.
Greg Shephard: 35:36 So we’re looking for businesses that save money and solve problems because that’s what the market says. So if your business is an opportunity face business, you have to change that business that I told you about in the case study was an opportunity based business because we were in a bull market, so it was after increasing sales for people and that sort of thing. We changed the whole go to market strategy. So it’s now about saving money. You don’t need as many marketing people, and you don’t need to pay for all these separate platforms. You can use just this one platform. So we altered the whole message, the narrative, the narrative spine of the business, and everything to adapt to this new condition.
Allison Hartsoe: 36:12 That’s perfect, and I think that correctly sums up the way a lot of people are feeling right now. So thank you. As always, links to everything we discussed, including the podcast and the download crisis management toolkit. We’ll be at ambitiondata.com/podcast in case you didn’t catch it during the show. Greg, thank you for joining us today it is always such a pleasure to be in touch with you and to have current information like the kinds you’ve provided on the COVID 19 for entrepreneurs.
Greg Shephard: 36:42 Thank you. I appreciate it. I mean, you are syndicating this out, so you’re helping me, and we’re helping these people together, so I have the same amount of respect, and I humbly appreciate it.
Allison Hartsoe: 36:52 Yay. Better world, awesome entrepreneurs. Remember everyone, when you use your data effectively. You can build customer equity. It’s not magic. Just as a very specific journey that you can follow to get results. See you next time on the customer equity accelerator.