Do Your Investors Really Care About Customers?

The dot com gold rush may have temporarily ground to a halt in the wake of the recent market corrections. But dot com fever still fills the airwaves, and even seasoned investors, well aware that markets go down as well as up, are lured into backing silly ventures at silly prices.

For a technology community that is eager to see worthwhile uses for state-of-the-art, Web-based applications, this is good news. For customers, however, I'm not so sure. In an ideal world, the best way to get a good return on investment is to ensure excellent customer satisfaction. In the real world, the interests of the investor come first, with the customer a poor second.

Let's take a mythical company, which has seen a successful public offering of its shares. Suddenly, the company is worth a lot of money. At this point the founders disappear. They've made their money, and are replaced by experienced managers who are chosen for their ability to manage existing businesses rather than create new ones.

Dot com hype and the outrageous valuations it has encouraged place tremendous pressure on managers. Perhaps the world accepts that few dot coms will generate short-term profit. But they must convince markets that there will be profit--and plenty of it--someday.

Proof of profit-making potential may be secured by demonstrating strong growth. This will fuel a takeover frenzy as market sectors consolidate and acquisitions make up for sluggish organic growth. And all the time, the market is watching.

Companies in this position are not stupid. They realise that skilful management of the market's expectations can circumvent problems. So it is not uncommon to find analyst predictions or company press releases used almost daily to influence market perceptions. In fact, many a CEO holds on to his job solely by managing the market valuation. No wonder investor relations has become big business.

The trick is to keep everyone informed about your company's reaction to the changing market, which involves frequent PowerPoint presentations that are long on figures and short on insight. Candour is expected, but not always delivered.

You can't send junior staff to talk to the financial media or market analysts. Convention dictates that this is the job of the CEO. So top management time is spent pampering the market, cajoling the market, educating the market, and perhaps apologising to the market. None of this is wrong in principle. But I worry that valuable time spent satisfying the investment community could be better spent satisfying the customers. A meeting with investors is time that could be allocated to a meeting with your biggest client.

After all, this is about placing a value on a business. Remember Oscar Wilde's line about the cynic knowing the price of everything and the value of nothing? It is because value has within it a number of intangibles that are difficult to calibrate. I long for the practice of factoring the effects of customer satisfaction into a company's valuation. As well as a financial due diligence process, someone would look at the customer base and quantify satisfaction.

Loyalty is easier to value. For example, historical data could show that a certain percentage of customers are lost each year. A prediction can be made for a future period, and compared with industry averages. Few dot com valuations have a basis in customer satisfaction. Indeed, they often pre-date the acquisition of customers. Or, if the company is already trading, they assume as a given that customers will be well managed. This means value is based on innovative business processes, brand names and technological delivery systems. Only when there are several competitors fighting for market share is customer service accorded greater significance.

So the moral is this. If you are the CEO of a dot com company, your short-term task may be to befriend the financial community. But in the long term, you must aim to build a defensible position for customer service. And isn't it about time investors realised that customer service will become the cornerstone of any successful operation?

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