The Impact Of Bad Customer Service

The Impact Of Bad Customer Service

Startups are born, survive and thrive on great customer service. How can you make sure your company is delivering it?

Customer service is the make or break for all organizations. Some may seem like they are getting away with subpar service for a while, but it inevitably always catches up with them eventually. Good support will help any startup secure financing from investors during the raising process of startup capital as the impact of great customer service is essentially positive retention rates of customers.

On the other hand, superb customer service alone can often make the entire basis of a hyper successful company that continues to grow fast and perform well.

Unfortunately, this is often underestimated. Even by veteran executives and operators. So, what are the principles of delivering great customer service? How do you ensure they are being applied in your business once you know them?

What Happens If You Don’t Deliver Great Customer Service?

If you don’t give great customer service you eventually won’t have any customers. Without customers you don’t have a business.

This doesn’t always appear obvious when looking at giant corporations in the short term. At least until they are disrupted by and replaced by young and lean startups who get this right.

No matter how big, well capitalized and long running, or famous, no one is immune from this law of business physics.

The outcomes of failing and weakness in this area are even more pronounced and can show up a lot faster in startups. That may not always be obvious from media headlines. Yet, you’ll see the evidence when digging into the data.

The Impact Of Poor Customer Service On Startup Metrics

These are just some of the ways that lackluster customer service will show up in your data.

Recurring Revenue

You are not going to be hitting your recurring revenue targets and forecasts without great customer service. Customer retention will prove very difficult and short lived. This can be a huge deal for investors, not to mention your cash flow. You’ll constantly be scrambling for new customers at all costs, and be rebuilding your customer base. As well as having to divert your focus and resources here instead of in other areas of your venture. Do not underestimate the impact this can have on everything.

Customer Acquisition Costs

In turn poor customer service is going to result in far, far higher customer acquisition costs. It will cost many times more to win each new customer. This comes from poor systems, bad reputation and lack of trust, and having to essentially buy customers instead of them being sent or attracted to you organically. With low retention rates many of the customers you do win will actually cost you more than they make you. That is not the recipe for a valuable, profitable or sustainable business. It will be hard to keep the venture alive. It will be frustrating for every department, leading to more burnout across your teams. Attracting investors will be much more difficult. If they are willing to bet on you, you can count on far inferior terms.

Reviews & Goodwill Valuation

It has been said that every happy customer leads to two more. While every negative customer experience leads to 200 prospects that will now never become your customers.

Anything but great customer service leads to bad reviews. It certainly kills the hope of any referrals and positive word of mouth advertising. Consumers are getting smarter and smarter at sniffing out negative information too. No matter how hard you try, and how much you splurge on burying your digital dirt.

This also directly impacts the valuation of your company. It will discount the value you might otherwise have. It takes away from the positives and reduces your investor and acquirer pool. While other companies may be bought for millions and billions more based solely upon their goodwill and brand love.

Profitability

There is absolutely no question that substandard customer service directly impacts your profitability. Every interaction will cost you more. Every customer and sale costs you more. All of this takes away labor hours and dollars that could be invested in improving other areas of your business and growing. Even if you are not striving to be profitable yet, it will rob you of that potential and progress in the other metrics you want to be showing traction in.

In the case of a crisis, or if capital and M&A markets contract, you may not have a road back to profitability and the ability to survive.

Fundraising Challenges

These customer service related metrics are a big focus of potential investors when it comes to fundraising. They’ll ask if you dare to try and hide them too.

Serious investors are also likely to poll and personally talk to your customers themselves to question them about the service they ar receiving.

If you can still raise capital, it is going to be more expensive. That will limit your ability to raise more in the future, and dilute your ownership faster, while putting more pressure on your organization on a daily basis.

At a minimum you can expect to spend a lot more time in the fundraising phase of each round.

Exits

Not only will all of this instantly turn off many potential acquirers of your company, it will scare away the best buyers.

If you can secure a sale, then you can expect to receive a whole lot less for your company than if you were performing in customer service.

The terms of the transaction are also likely to be inferior, and heavily weighted in the favor of your acquirer, instead of your.

How Hard The Journey Is

The startup journey is already incredibly hard and challenging for entrepreneurs. Far more than most can really imagine until they are in the midst of it. The last thing you need is to make it even harder on yourself, your cofounders and everyone else along for the ride.

If the mission is important to you, then respect that customer service alone can make or break your ability to continue on the journey too.

Product Market Fit

Without extreme focus on customers even before you start your startup you cannot reasonably expect to find product market fit. If you do, it will only be the result of luck and a lot of wandering around blind in the desert.

Without product market fit startups die. While those who nail it will see their ventures rocket and take off by themselves. Often achieving far more than they expected, and far faster.

John Norwood
John Norwood is best known as a technology journalist, currently at Ziddu where he focuses on tech startups, companies, and products.