Attacking New Customers

Many companies declare war on their customers, sometimes without realizing it. Customers are sometimes wrong, but too often businesses miss information about new markets, new uses, and new products because they see customers as the enemy instead of as the source of revenue and growth. They also focus too much on their existing view of the product and forget that customers may have a fresh, new take on a product’s utility.

For those who followed VC industry news, my fund led the US$61 million Series D Preferred into Chia Network and I have a small crypto farming operation on the side. Farming Chia requires hard drives since it is based upon proof of space (thus using 1/10,000 the electricity of Bitcoin). The wild success of Chia in fact has created a global shortage of drives.

Over the last few months I have had multiple prepaid orders cancelled when the drive manufacturers or their vendors suspected I was using the drives for crypto farming. I have been (and continue to be) deposed to ensure I was only using drives for “legitimate” purposes. One seller, after conferring with one of the major drive manufacturers representative, even wrote to my neighbor in an email (yes, they Googled to find a neighbor) that I was a “scammer.” In writing. (That is defamation, by the way.) Others refused to fill my orders or canceled them even after the money was wired and the goods were on their way, turning the shipments around. The distributors of one of the major manufacturers keep treating me like an international drug lord kingpin instead of a potentially multi-year loyal, prepaying customer.

Certainly, none of the drive manufacturers saw this use coming (they were warned, but who listens). Chia’s success strained their supply chains and caused shortages for existing customers. However, the answer is not to demonize and make enemies of those who find new and unexpected uses for products. In fact, the success of Chia turbocharged earnings of all the drive makers and their stock prices. The CEOs of Western Digital and Seagate should be treating the Chia community to a nice dinner, instead of owing us breakfast in the morning.

Anti-customer bias is endemic in all fields, especially when they do not behave as we think they should. When I was a lawyer, associates routinely groused about how stupid the clients were and how clients were wrong in their business needs. They relished in telling the client all the ways their needs were invalid. It is a temporary rush to feel smarter, but clients hate when their service providers are at war with their interests. One of my favorite law school professors (and one of the only ones who ever actually practiced law) always chastised students whenever an answer revealed “anti-client bias.”

Sometimes the growth field is the new application you do not understand. While you do not want to alienate your old customers, you also do not want to drive away new customers, as they are the engine of your future growth. One of the hardest pivots for companies to see is the customer segment pivot. You built your entire business around a particular set of customers, replete with all the assumptions, culture, and infrastructure to serve that market.

It should be obvious not to attack customers. Sometimes your customer has no choice but to use you as an existing supplier or vendor, but memories are long. In the future, another company will capitalize upon the unmet need by catering to that niche or vertical. And each of your competitors will be waiting to pounce on your alienated customers.

Customers also provide you hidden information about new applications and fields for your product. Unexpected and novel uses of a good or service can lead to a pivot or entirely new business. Instagram started as a poorly designed mobile app called Burbn, but customers kept using the photo capabilities while ignoring the check-in and gaming functions. Flickr similarly started as an online role-playing game, but customers loved the photo sharing tool more than the original product. I do not recall either of their teams calling their customers scammers. They listened and caught the new trend.

What if there is an equal or superior market hidden in plain sight? Do you dare miss it? Most incumbents do. No one made Kodak or Polaroid irrelevant but themselves. Pivot and adapt or be replaced. Some businesses, like drive manufacturers, have the luxury of having effective oligopolies, but such market dominance is fleeting and painful when disrupted. Major disruptions in uses tend to create new players to destroy incumbents. In your business, embrace the new trend and those at the vanguard of it.

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