A Startup’s Net Profit Score Is More Important Than Its Net Promoter Score

Wayne Gretzky “You miss 100% of the shots you never take.” 
Wayne Gretzky

Imagine how difficult it would be to score in hockey if you were required to rely on someone who is not your teammate to convince another third-party, whom you have not met, to take a shot on your behalf.

As crazy as this scenario sounds, it is very similar to the “scoring process” companies engage in when they track Net Promoter Scores.

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Net Promoter Scores (NPS) are the darling of many Big Dumb Company (BDC) product marketing and customer support executives. Created by consultants to generate additional fees, such scores attempt to rate a company’s overall customer satisfaction. The score is calculated by asking customers, "How likely is it that you would recommend our company to a friend or colleague?" Answers are based on a scale of 0 – 10. The higher your company’s NPS, allegedly the higher your customer satisfaction.

Rather than obsessing about an indirect gauge of customer satisfaction, entrepreneurs should focus on improving their Net Profit Score. BDCs can afford to fixate on such esoteric measures, while startups must generate tangible financial results. A Net Promoter Score of 10 and a bank account of 0 equal a failed venture.

Turning Net Promoters Into Net Profits

Shockingly, some of the recommended tactics pitched by NPS gurus could actually decrease your sales by solidifying a propensity to not promote your solution. As noted in Cialdini’s landmark book, Influence – The Psychology of Persuasion, the Consistency Principle is a powerful predictor of a consumer’s future behavior.

Commitment is firmly established when a consumer verbally responds to an inquiry. For instance, if you ask a consumer the NPS question and they reply, “Zero, I will never recommend you to a friend or colleague,” you have actually increased the chances that they will never make a future recommendation on your behalf, even if you subsequently rectify their initial complaint or concern.

Cognitive dissonance results when a person’s commitments are in conflict with their actions. In this case, the commitment was “never” and thus the respondent’s most likely future actions will remain consistent with their verbal commitment. As such, consider not asking customers the NPS question when such inquiries might compel them to future negative actions, such as after a customer complaint or unsatisfying technical service call.  

Despite the indisputable reality of the Consistency Principle, NPS consultants frequently advocate assessing a company’s NPS following contentious situations. Rather than blindly follow this advice, consider measuring your NPS after unpleasant customer interactions, via a web form. Non-verbal responses do correspondingly influence future behavior, but to a lesser extent than verbal responses. However, irrespective of the manner in which you broach the NPS question subsequent to a contentious interaction, understand that you do so at your peril.

Wrong Question

The indirect and passive nature of the NPS question is also problematic in the results-driven environment of the typical startup. Thus, rather than asking, “how likely are you…?” consider a more actionable inquiry, such as, “Will you recommend our company to a colleague or a friend?” Startups should Go For The No and avoid spending extraneous time cultivating lukewarm prospects. A quick “No” is far more valuable to a busy entrepreneur than a nebulous NPS response of “five.”

A binary question will help you identify which customers are more likely to lead to future prospects and which will not. “Yes” responses are prime candidates for future references. A positive response to a declarative question will enhance the customer’s commitment to actually make the promised referral.

Going Beyond The Question

Once a customer commits to a recommendation, proactively ensure that the referral actually occurs. As noted in Personal Pitch, entrepreneurs must make it easy for others to help them succeed. For instance, you can facilitate your customers’ ability to provide you with references by giving them an email template they can readily forward.

Reciprocity is another well-documented persuasion technique. Entrepreneurs should never underestimate the power of a sincere Thank You. Leverage the power of Reciprocity by sending customers who agree to make a referral a small, thoughtful gift in advance of the actual referral. By thanking your customer for a referral they promised to make, you may prompt them to act when they otherwise would not.

If you do not hear from your customer after you send the gift and it is unclear if they actually made the promised referral, follow-up to, “ensure that they received their gift.” In the course of your follow-up, politely ask them for the contact information of the person they referred to you so you can ensure that the prospective customer receives your highest level of service.

Shots On Goal

Net Promoter Scores are a godsend to BDC executives who live in a world of PowerPoint graphs and endless ethereal analysis. However, entrepreneurs are not well served by estimating the probability that a third-party will attempt to score for them at some undefined point in the future.

Hockey fans and entrepreneurs understand the importance of a high number of shots on goal. The hockey teams and startups that take the most shots often emerge the winner. When a startup focuses on assessing the propensity of someone to make a customer reference, they are hoping strangers will score on their behalf. Successful entrepreneurs Hope Less and shoot more.

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John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.
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John Greathouse

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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