The Bootstrapped Founder Newsletter Episode 34 – July 3rd, 2020

Dear founder,

It has been an extraordinary week for me. After working on it for six months, I have released my book, Zero to Sold. It’s been a whirlwind of a launch. Between a wildly successful launch tweet, a Product of the Day on ProductHunt, and reaching Amazon Bestseller in the Small Business category, I also sold 634 books within the first 24 hours.

It’s been an incredible journey, just those two days. I’ll write about the whole writing and publishing experience at length in the near future. If you want to get a glimpse of that, tune in to episode 38 of the Bootstrapped Founder Podcast, where I tell the story of how the launch went.

But since this newsletter isn’t just for me to plug my book. If I were to do that exclusively, you wouldn’t be a subscriber for long. And that’s what I want to talk about today: customer retention.

When it comes to customer relationships, momentum is on your side: it is much easier to retain a customer than it is to find a new one. Once the initial inertia is surpassed, the effort that needs to be put into keeping a customer is significantly lower than acquiring and onboarding another customer. And a churned customer is a double loss: not only do you have to find a new customer to replace them. To grow, you will need to find two new customers. That’s why customer retention is of utmost importance to grow a business reliably.

This focus on retaining a customer at all costs is somewhat new. Before the subscription economy, a repeat customer was a nice-to-have, but most of the time, the relationship with the customer was over after the first transaction. Processes were optimized to get the customer through the order process and stop them from abandoning their cart. But once they ordered, it was over.

The membership economy is very different. Customer retention is more important than getting new customers, as churn is the silent killer. Retention can be measured in renewal or cancellation rates, and keeping it as close to 100% as possible will decide if your business is sustainable or not.

Luckily, there are several proven strategies to increase retention, and they all center around your relationship with your customers.

Value Nurturing

Value nurturing strategies increase the customer’s perceived value of your product, making the cancellation feel like a more significant loss. Showing your customers how much they benefit from your product will make them stick around longer.

Your goal is to over and over again confirm your customers’ belief that choosing your service was a smart choice. Not only does it have to feel right, but it should also clearly be a good economic decision, both on their first day and right now.

In an ideal world, customers would continuously notice what a fantastic product you provide them with. They would flood your customer service channels with thank you messages, and they would write long blog posts about how everyone should be a customer of your business, forever. Sadly, life gets in the way, and other things are much more important to your customers.

That’s why it’s up to you to show them what they get. Show them their progress, how much they have improved ever since they used your service. Show them how well they do compared to other users, how much impact your service has in their lives. In short: make the value they receive visible to them inside your product and in your communication.

It’s not only limited to this, though. The goal is to retain a customer, and showing them what they get is just one way of keeping them around. You want your product to be something they depend on. When times are tough, you want your service to be the last one to be canceled. This is best accomplished by creating voluntary dependency: offer something that your customers want to depend on. Provide so much value compared to the alternatives that they willingly take the risks inherent in every choice of using an external product.

A word about value: we are not just talking about your revenue here. For your customers to stick around, your business needs to provide them with benefits and advantages every single time they use it. Your customer lifetime value is inextricably linked to the perceived value of your customers.

Here’s the trick to customer success: increasing their revenue will increase yours. Make them successful, help them grow the lifetime value of their customers, and their LTV will expand as well.

Expectation Management

Managing expectations is a significant factor too. Being able to occasionally over-deliver will delight your customers as it is an unexpected bonus. I’m not saying you should consistently undersell your product. But surprising a customer with something good they didn’t expect is a rare occurrence in the business world. Those who succeed at that will be remembered.

Customers will tell a few people about a positive experience, but they will tell a few dozen about a negative one. Keeping customers above the baseline will reduce the chance of them ranting to their peers, who may often be potential customers.

Every impression counts. At any touchpoint, you can synchronize expectations. Find out what your customers are concerned with and adjust your priorities when expectations change. From your customer’s perspective, it’s a magical thing to see a feature suggestion become an actual feature.

The level of trust in the brand and the decisions you make are incredibly important for renewal. By aligning what your customers expect you to do with your actions, trust grows, and value generation will happen along with the expectations of your customers.

Those expectations change over time. In the beginning, customers often have to find their footing, and they expect ease of use and being able to integrate your product into their workflow. After a few years, focus shifts to perceived value, as your service has become a regular part of your customers’ work routine. Unless they’re really needed, customers will ask less and less for new features, and they will shift their focus onto existing parts of your offer and how the current set of features can be improved even more.

Throughout a customer’s lifetime, get a feel for the acceptance of and desire for self-service in your customer base. In the beginning, you can respond to every support query yourself. When you scale, more of your support will shift towards more asynchronous and self-help solutions. It’s important to take your customers with you on that journey. The early adopter that you talked to every few days through your real-time chat will have to understand that your attention is more divided. Their expectations will need to change with your structural changes.

Find the At-Risk-of-Leaving Customers

In the best case, a customer stays with you for many years. They love your product, their very wishes come true every time, and they become catalysts for your marketing.

This is, of course, utopian. Every single customer of yours has different problems and hardships, and what works for one may not work for the other. Inevitably, at some point, a few customers will think about canceling. If you want your retention to remain high, there are two things you can do:

Convince them to stay before leaving. The hard part is to figure out who is about to leave. You can track people clicking the button that starts the cancellation process and trigger a customer service conversation. Tag this customer as someone who should receive a follow-up email asking what you can do for them. You can track other things than clear cancellation intent: do they stop using the product for a long time? Stay clear of acting too quickly, as this is often a result of vacation, maternal leave, or just other priorities. But it is worth measuring so that you have an indicator you can use to inform your communication strategy.

Convince them to come back after they leave. This is your last chance to retain them as a customer. After someone cancels, give them a grace period of a few days or hours, but re-engage them. Depending on how shameless you want to be, ask them to return with a free month, or even extend them the offer of a lifetime discount for returning on a paid subscription. As long as it fits into your economic calculations, keeping a customer is worth more than losing them, even with reduced revenue.

There is a difference in what makes customers leave, and it is connected to how long they have been with you. Early customers are more likely to quit because of lower switching costs and less dependency on your service within their established workflows. They’re more jittery, so expect their cohorts to cancel more. Long-term customers quit for different reasons: either their perceived value decreases or the problem-solution-fit of your service is misaligned. Take your customer size and age into account when you craft your messaging for each cohort, and find something that works for each of them.

Actionable Retention

Here are a few things we did at FeedbackPanda to keep customer retention as high as possible.

Staying in touch with your customers will keep them engaged. Offer a weekly newsletter to expose them to things that happened in their industry will do two things: first, it will associate your business with a trusted source of information, and it will also show that you know what you’re talking about. Building trust and reputation goes a long way toward retaining a customer.

Tighten and focus your onboarding. A customer who “gets it” quickly after signing up will stay with you longer and think of your business as a dependable service. If you can reduce the number of steps until your prospective customer reaches the “a-ha” effect, go for it. There is nothing better than a customer telling their peers that your service is “a no-brainer.”

Do things that don’t scale. Send a postcard. Delight your customers with surprises on their birthdays. Send them a gift after they’ve been with you for a year. Host a meetup in the city where most of them live. Surprise them in ways that other businesses can’t β€” and wouldn’t. Not only will this make those customers stick around, but word will travel, and you will benefit from your customers sharing their delight and surprise with each other. When we had our first one hundred customers, we sent out postcards to all of them. A lot of customers shared photos of receiving those postcards in the mail, and consequently, a lot of prospects signed up for our service.

Ask your customers for testimonials. Use them on your marketing site, in app-stores, or any other platform where they can share it with their peers. This gives you reputation and your customer a feeling of being appreciated; after all, they are asked about their opinion. We often did this after intense customer service interactions where we solved a customer’s problem successfully. A happy customer gives great revmiews.

In every interaction, focus on building a respectful relationship with your customer. It’s the one currency that is worth more than the money they pay you every month.

Links I Found Interesting

Landon Bennett shared his bootstrapping journey with Ad Reform and Userfeed to $250,000 ARR a while ago. I recently stumbled on that post and was mesmerized by the data’s granularity and the thoughtful reflection two and a half years into the journeyβ€”lots of fascinating lessons and insights along the way.

Courtland Allen, the founder of Indie Hackers, talked about funding for bootstrappers this week. It’s an extension of his conversation with Rob Walling on a recent episode of the Indie Hackers podcast. It draws a compelling picture of the future of “bootstrapping”, making it less about not using funding and more about being scrappy and resourceful. It’s a fantastic development to see bootstrappers like Tyler Tringas creating funding options for people like him. For bootstrappers by bootstrappers. I welcome this development.

As a data hoarder and voracious reader, I enjoyed learning that Springer has released 65 Machine Learning and Data books for free. Having built one of the core functionalities of FeedbackPanda that gave us a little moat using a Machine Translation system, I can only recommend at least learning the basics and figuring out if this kind of technology can serve your business.

If you’re having trouble finishing your side project, this article might help you. Often, it really is just about managing expectations. The article points out that reframing your goals and reducing cognitive exhaustion will make the work easier and more enjoyable when you’re also working a full-time job. If you are in this position, check out Hugo Zap’s blog.

Bootstrapping Success Stories

Andy Cloke, the founder of Influence Grid, sold the business for mid-five figures. He had reached $3500 MRR when he decided to hand over the reigns of his TikTok influencer SaaS. It’s a great feeling to sell a business for a lot of money, I’ve been there. Congratulations, Andy. I hope you get to do the same thing again very soon! Maybe with this project? πŸ˜‰

And there’s another acquisition to report! IndieHackers user nscode sold his side project Open Startup List and is writing a book about it. It seems like building a business, selling it, and then writing about the experience is a good idea.

That brings me to my Indie Hackers milestone that I shared after 24 hours of launching Zero to Sold. I can’t express how much the kind words of the people who commented on that milestone mean to me. The Indie Hackers community is where I learned so much that allowed me to build a sellable business in the first place. Dear reader, if you’re not yet a member of that community, take the time to sign up. And if you already are, think about commenting on people’s posts every now and then. It makes such a big difference.

Thank you for reading this week’s edition of The Bootstrapped Founder. If you like what I wrote about, please forward the newsletter to anyone you think would enjoy it too.

If you want to check out my book, you can find that at zerotosoldbook.com.

If you want to help me share my thoughts and ideas with the world, please share this episode of the newsletter on Twitter or wherever you like, or reach out on Twitter at @arvidkahl.

See you next week!

Warm Regards from Berlin,

Arvid