Prediction #4. Commercial Office Space Glut, the end of the open workspace, and the beginning of rent-a-conference room booms.

If the workforce is working from home at least 2 out of 5 days, we are going to see a huge decrease in commercial real estate – including something like a 10-20% vacancy rate.   Not all of that will go vacant as companies will need to reshape their office-space to get rid of or modify open workspaces.  

Expect an increase in private offices and cubicles and a lot of mini-cubes – open workspaces modified with more space and plexiglass between stations.

Each office will likely have 30% more sqft per person but with fewer people in the office each day we likely won’t notice.

Other offices will go completely remote resulting in an extra glut.

The results will trickle across the entire office area. Many restaurants in commercial districts will close since they no longer can be profitable with limited traffic (on top of the reduction in seating due to social distancing and hesitancy to do business lunches). Some gyms in the area may close for similar reasons. This may bring about a vicious cycle where working in commercial districts becomes less desirable resulting in more work from home and even more reductions in adjacent businesses.

On the flip side, even remote companies will want to find ways to bring their teams together.  Expect companies to maybe replace their permanent offices with rentals (like We-work) with a focus on conference spaces.  People will come into the office 2-3 times a week to have in-person meetings and work from home the rest of the time.  Companies that rent temporary private conference room space may see a huge boom.

Opportunities:

  • Platforms that provide temporary conference room/meeting spaces like Breather are going to explode.
  • I anticipate some office spaces will convert to temporary conference room /meeting spaces.  Companies that can help facilitate this change will emerge.
  • We will see new innovative pickup-only restaurants that will take advantage of excess retail/commercial space.  
  • Safe (outdoor) Company Retreat locations will emerge allowing people to drive down and work together as a company in a safe environment.  Retreat planning companies and tools will also see a boom.
  • A new type of window-shopping.   Currently storefronts have been optimized to get people to come inside.  Expect some new companies to emerge where the storefront is optimized to get people to make a purchase with codes on the item.   Some stores will optimize what items/photos are shown on their storefronts allowing people to make quick impulse decisions and buy items waiting outside the store.  

If you currently are working on one of these opportunities or want to work on them, please contact me at charlie at iamcharliegraham dot com

Prediction #3: Business Travel is going to be down 40% long term.

One of the biggest changes over time will be a huge decrease or change in business travel.  During this pandemic, business travel completely stopped.   Employees who used to travel to HQ now met on video.  Sales calls were done using Zoom.  

For the most part, people found the remote calls to be efficient – especially when they previously met in person with the counterparty.

I’ve spoken with a bunch of friends who traveled a ton before the pandemic and they universally say one of the biggest changes they will make is to reduce business travel – which puts a big burden on their family, health, and marriages.

Business travel will still exist in a big way – especially for sales.   Everyone is still going to travel in-person to “close the sale” as you don’t want to be the one competitor who is remote but for existing relationships, expect a substantial proportion of communication to be handled over video chat.   And some frequent travelers will continue to travel – whether because they enjoy it or like to escape from the family. 

But expect a culture change for expensive in-person meetings.  Instead of flying to HQ every month, expect teams to all remotely zoom in 2 out of 3 months and meet in person once a quarter instead.

And customer success/account management will likely happen more frequently over video since employees are finding it to be almost as effective and much less expensive than frequent travel.

Opportunities:

  • There will be new software companies that analyze sales calls using Zoom and AI to figure out how to improve your sales by tracking what you say, the cadence, the reaction of the potential customer to what you say, etc… (Expect a people.ai type product for video interactions.)
  • On-demand delivery/gifts or other ways to replace going out for dinner. If salespeople reduce their number of visits, there will be a need for something else replacing schmoozing and business dinners.  Expect distance-based “schmooze” events. Like a company that sends a customer 3 small bottles of scotch and sets up a joint remote tasting. 
  • If many business calls are remote we will see new tools that build on top of video calls.  Given many sales calls will now be via Zoom, a tool that grabs the relevant snippet of the zoom call and passes it on to other parties would be very useful.  For example, imagine sales reps being able to push a button and share video snippets of customer insights directly with developers.  (Grain.co is doing something like this right now.)

If you currently are working on one of these opportunities or want to work on them, please contact me at charlie at iamcharliegraham dot com

Prediction #2: 20-30% of people in white-collar jobs will work from home at least 2 days a week.

Pre-covid approximately 4% of white-collar workers worked from home. It was not seen by most workers as “acceptable”. Employers did not think employees could be efficient while working from home.  

Now during our lockdown, 50% of white-collar workers are working from home 100% of the time. Companies have quickly built work-from-home infrastructure, replaced in-person meetings with Zoom calls, and survived.

Many managers are surprised at how productive their teams have remained. Many employees have started to appreciate part of work from home (the flexibility of being able to run errands, the lack of a 2-hour commute, the ability to have dinners with their family, and the extra productivity with fewer distractions). 

Obviously, this has not been an ideal WFH experiment. Parents have had to homeschool while working, companies that work with physical goods lack the ways to test/experiment or sample those goods (how does an apparel store check out the latest line of clothing?) and some companies have special equipment and tools that you cannot do at home.  

But even with that, this change is going to shift work to part-time WFH – resulting in a long-term increase in remote work. The infrastructure is now in place, employees have gotten a taste of the benefits, and company management has been pleasantly surprised with the level of efficiency. People are going to go back to the office (many miss it) but companies and employees are going to be much more open to having their co-workers work from home at least a few times a week.

Opportunities:

  • Major innovations in home office furniture and supplies. (Think new types of standing desks, microphones and speakers, office green screens, etc…). 
  • Home office product review sites. (Best home office microphones, standing desks, setups)
  • Home office furniture stores focused on company budgets. (What you can buy with a $1500 stipend from your company).
  • New Procurement and inventory management platforms focused on at-home equipment. Larger companies used to only need to keep track of desks/chairs in the office. Now they will need to handle purchase, delivery, recovery of in-office equipment.
  • Productivity analytics tools will emerge as more work will be done via SaaS tools so more work will be trackable. 
  • An explosion of tools to make meetings more efficient and productive (automatically teases out “action items” from Zoom meeting transcription and adds to Asana, etc…)
  • Changes in Hiring/ATS tools to facilitate remote workforce
  • The unbundling of Zoom. We are only in inning three of a nine inning game of video-chat with companies like Zoom.  While Zoom currently has the best technical reception, the space has a pretty low switching cost and it is very horizontally focused – or as some would say “the jack of all trades and king of none”.  It specifically is not so good with use-cases like group networking events, always-on serendipity, and interactions besides a basic chat, hand wave and video responses.  I would expect in the next 5 years half a dozen upstart companies will emerge de-bundling Zoom as verticalized video-collaboration for specific use cases that handle the problem 10x better than Zoom emerge and gain traction.  

If you currently are working on one of these opportunities or want to work on them, please contact me at charlie at iamcharliegraham dot com

Prediction #1: We are not going back to close to pre-Covid normal until at least May/June 2021 (not 2020!).

The current equilibrium of physical separation, reduction in large gatherings, human interactions, and indoor activity is not going to go away soon. As of right now (end of May 2020) states have put in varying levels of restrictions from the most severe lockdown rules (currently SF Bay Area, California) to the laxest (currently Georgia).   

Lockdowns will eventually get lifted in the next few months, but I don’t believe that will matter much. The main driver of the economy is not government restrictions but human behavior – and more specifically the tradeoff of the risk of catching the virus vs the reward of the activity. People in lockdown areas were already breaking the law – having parties and getting together, in-person church gatherings, sunbathing on beaches, etc… And people in states and countries with fewer regulations were still seeing a reduction in activity. In early March, Opentable reservations were down 73% across the country and this was before lockdowns. In Sweden, which has not had a lockdown, restaurant reservations are down 70%.

In democracies, individuals are going to be making their own decisions and those are going to be driven by their incentives – what is the added risk if someone I love is going to get sick? What is the benefit I get from doing this activity?

As Covid becomes less prevalent in someone’s area, people will start becoming bolder in their actions and as Covid starts picking up, people will start becoming much more fearful and conservative.

We, therefore, are not going to get back to a pre-covid normal until the fear of getting Covid is super low. There are a few ways I believe this can happen:

  1. Distribute an effective vaccine – Finding and distributing an effective vaccine is the most obvious way to get rid of the fear of COVID – get an effective vaccine approved and distributed to billions of people. Unfortunately, the fastest the world has ever done this is 4 years, and most scientists believe we won’t be at a scaled effective vaccine for another 16-18 months at the earliest.
  2. Find a game-changing new treatment. Another way to remove fear is to find a treatment that renders Covid much less deadly. One very promising outcome of this current environment is the massive shift of biopharmaceutical companies to focus on Covid treatments and vaccines. We are in the midst of what I have been calling a world-wide “Manhattan Project” to find a cure. Hundreds of treatments are currently being tested simultaneously. While there certainly is a chance we will find a magical treatment, it currently (as of May 2020) seems unlikely.
  3. Herd Immunity – At the time of writing this, some people have spoken about herd immunity and it does fit here. If everyone gets covid and it passes through we might be able to get enough people to get covid (70-80%) to get to herd immunity. The theory is that once we reach that level and “let it pass through us”, the virus no longer exponentially grows and therefore people can return to normal. Unfortunately, there are a lot of negative side effects. a) the net result would be 80-90% of our population getting infected (since just getting herd immunity does not make it immediately go away – it just reduces virality to below 1. b) to get to 70%, we may need to compel people to get the virus (i.e. forcibly inject them) – especially people with more disposable income who might try to hide and wait it out. And at 80-90% infected we likely will not be able to protect our most vulnerable as well. Based on a current Infection Fatality Rate of 0.7% this would result in a total of 1.5M-2M dead in the US. Finally and most relevant, herd immunity also takes at least 12 months to get through the population and to make it work. Also, herd mentality does not take into account the fact that immunity may not be long-lasting, in which case people who previously got Covid may get it again.
  4. Reduce/Test/Trace. California and some other states are following the playbook used by Singapore, Taiwan, South Korea, and some other countries – Shelter in place until the numbers are drastically reduced and then ramp up testing and tracing. If California can control every case, they may be able to slowly open the economy, closing down certain sections when there are new outbreaks. Right now most states are feeling so much pressure to re-open the economy that this is likely not going to happen.
  5. Covid magically disappears – there is a chance Covid magically disappears. While possible, it is probably unlikely at this point.

In short, it is looking very likely that things are not going to go back to normal in the next 12 months. People are going to go about in stages of fear/less fear depending on the current outbreak. This means behaviors are going to change, new habits are going to form and new types of companies are going to emerge.  

The New Normal – A New Blog Series

I have not blogged in a while, but given the recent changes in the world, I am starting up a new series called The New Normal. My goal is to start to get my head around how our current situation is going to change the world in the next 3-5 years. Like many have already written, I believe we are in the midst of a new normal, with changes in habits that will last a very long time.

The Current Situation – A Shock Equilibrium

The coronavirus pandemic has put the world into a complete shock equilibrium. Given the easy spread of the virus, we have instituted shelters in place, physical separation (currently 6 feet), restrictions on indoor spaces and large gatherings of people, and required mask-wearing. 

The old equilibrium of how the economy has worked has shifted. Companies that thrived just a few months ago (Airbnb, Uber, Southwest, AMC, luxury retailers like Neiman Marcus) are now struggling to survive. Environments that congregate groups of people, focus on in-person experiences or close human interactions (restaurants, concerts, sports arenas, movie theaters, airplanes, holiday travel, crowded malls, public transportation, hair stylists/salons, open-space offices, places of worship) have been shut down. Organizations have had to completely shift their experience online or suffer. 

On the other hand, online-based businesses like online shopping, online work tools, remote work tools, eSports meanwhile have exploded with huge tailwinds. Remote-workforce apps that were just trudging along a few weeks ago have exploded in growth. 

We now live in a new economy and it is very different from where we were just 2 months ago. 

The posts I write in the future are predictions based on this new normal. Keep in mind these are just predictions and bets – not absolute truths. Many will end up wrong. Unlike most blogs, I am keeping these as living documents – updating them as we learn more. I’ll do my best to include updates in the post.

Predictions

  1. We are not going back to close to pre-Covid normal until at least May/June 2021 (not 2020!).
  2. 20-30% of people in white-collar jobs will work from home at least 2 days a week.
  3. Business Travel is going to be down 40% long term.
  4. Commercial Office Space Glut, the end of the open workspace, and the beginning of rent-a-conference room booms.
  5. We may see a great unraveling of location-based company workforces and an even bigger shift-to-remote
  6. Group indoor exercise is going to be much different for the next few years
  7. An Explosion in BioPharms innovation
  8. Dine-in “Experiences” will be significantly curtailed as 30% of restaurants go out of business.
  9. We will see new models of long-distance “connection” and interactions that will last longer than Covid.
  10. Obsession with Tracking and cleanliness will lead to entirely new industries.
  11. Prediction #11: VCs, Startups and the Great Covid Business Divide
  12. Prediction #12: The Rise Of The Bootstrap Entrepreneur
  13. The No-Code Movement Is Going To Have Its Moment In The Sun
  14. Sports Betting Is Going To Explode

Max Revenue

CliffLooking
Let’s say you are a CEO of a rapidly growing startup (or a VC deciding whether to invest in a rapidly growing startup).  All the numbers look up and to the right. How do you know how big this company will get?

When looking at subscription-based companies (or any company that is based on Lifetime Value vs a one-time transaction) a few simple equations can help you predict your maximum engagement levels, maximum revenue or (in a future post) maximum EBITDA or profit.

In this post I’ll describe the equations first (sorry – have to go into a little math) and then discuss the repercussions.

The simplest equation is figuring out your peak or maximum engagement.  

Equation #1 – Maximum Sustainable Engagement =  1/CHURN x NEW GROWTH

To figure out the maximum sustainable engagement, take the reciprocal of your churn (i.e. 1/CHURN) and multiply it by your average new growth.  

For example: If you lose 25% of your customer base year over year and get 1000 new customers a year, your max customer size will be 1000 times 1/.25 or 4000.  At 4000 customers you will be losing 1000 (or 25%) each year due to churn which is exactly the same amount of new members you get.  

You can use a similar equation to determine your maximum revenue.

Equation #2 – Maximum Revenue = 1/(ARPU CHURN) x GROWTH x (INITIAL ARPU)

To determine your maximum revenue, instead of churn, use ARPU churn (Avg revenue per user) churn or the fraction of money you make per cohort in year 1 vs year 2.  For example, if you make $1000 from 100 customers in their first year and $800 from those same 100 customers in year 2 you have an ARPU churn of 20%.  ARPU churn accounts for not only churn in terms of inactive members but also churns in terms of less revenue per customer due to less engagement or declining purchases over time.  So if you are growing at 1000 new customers a year with a $10 ARPU (Average revenue per user)  in year one and  a 20% ARPU churn, without any other changes your company’s maximum possible annual revenue would be $50,000 or (1/.20 * 10 * 1000).

In both of these equations, the reciprocal of your churn (i.e. 1/churn) is your multiplier effect.  If you have a churn of 50% you maximum size is 2X your annual new membership. If your annual churn is 10%, your maximum size will be 10X your annual new membership.

So why do these equations matter?  First, by understanding your max sustainable revenue you can start to predict how big of a company you are actually building.  Second, if you play around with the model you will start seeing some key take-aways.  Specifically:

  1. Churn – not growth – is the key metric to building a long-lasting great business.  Increasing your growth or your revenue will linearly increase your market-size potential, but reducing your churn can grow it exponentially.  If 50% of your existing customers drop off each year, you have to make up for 50% of those customers each year before you can start growing.  On the flip side, if your customers stay 99% active a year later retention rate, you only need to make up for 1% of your existing base before you can grow your audience.   You can cover up the churn problem in the short term by growing quickly but eventually it will come back to haunt you.  (Note: this is one of the reasons I am so bullish on building fantastic long-term engagement.  Long-term engagement of existing customers is the key to long term profits – even more than new membership growth)
  2. Churn is the combination of both people who stop using the product AND a decrease in revenue.  Companies often think of churn as the % of customers they lose completely each year.  But real churn is the amount of % of revenue you lose each year from each customer.  This is particularly true for ecommerce-based and entertainment-based companies where customers may still be active but just buy less in year two than they did in year one.
  3. All else being equal, all companies that have churn in a steady state have a maximum size.  If you are losing customers (or revenue per customer) each subsequent year, you will have to make up for it.  Eventually the existing customer base will get so large that the company can only replace its churning revenue and basically be running to stand still

I find it interesting that a large number of investors, press and potential employees considering companies overlook these numbers and just look at the hockey-stick rate of growth.   In my mind they are missing a key component that may eventually come back to haunt them.

In future posts, I will delve into more of the details on how you can more accurately estimate churn, and growth rates and eventually start predicting the max sustainable EBITDA.

Notes:

  • The Max Revenue model is a simplified equation.  In particular, it assumes long term industry growth is similar to the discount on future revenue.

The Limits To Viral Marketing

wildernessculture-rei1440project-welltravelled-awesomeearthFor the last few years virality has been in vogue.  Talk to almost any consumer or small-business-based startup and they’ll tell you that their marketing plan is to figure out how to grow by word of mouth, become viral (so that each person who joins brings in at least one more person) and then sit back and watch their customer-base exponentially grow.

Virality is a great cause (and often difficult to achieve) but it is almost always fleeting.  You can be viral to start off your membership base but you will almost never remain viral for long.

Here’s why: When you first start becoming viral, your users can reach out to a pool of 100% of potential new users.   As more people sign up via viral channels, the number of potential new users decreases since more people become existing members.  As a result, whereas someone might have originally been able to introduce 10 new people to your service, they might only now be able to introduce 9, 8 or 7 (since the rest already know about it and have signed up).   

A company that starts off with a K-coefficient of 1.1 (i.e. 1.1 new people sign up for every initial signup) will stop being viral once less than 10% of its target audience becomes members. Since the available pool of new members decreases by 10%, you will end up with a K-coefficient of less than 1 and your growth will soon start to decelerate.  A company with a K-coefficient of 1.05 will stop being viral after only 5% of its target audience becomes members.

In fact the only companies that continue to grow by word of mouth in the long run are those that both have absurdly high virality coefficients – think messaging companies like WhatsApp and Facebook –  and are in huge markets (think global population).

Reaching viral growth is a noble goal and definitely can help kickstart your company.  But keep in mind that it will only get you the first set of customers of your total audience.  

Observations and 5 Predictions for the Apple Watch

watch3

I’ve now owned an Apple Watch for around 4 months. I bought it because a) I wanted to live in the future (and I think we will all be wearing some type of wearable in the future) and b) because I am testing out a few new ideas on it. I read many articles, talked to about a dozen people who own one and heard the full spectrum of opinions.

When asked what I think about the watch, I describe it with one word: potential.  Today’s version 1 of the watch (or v1.5 now that OS2 is out)  is not yet a must-have product:  it can be horribly slow, the battery dies quickly and there is no real killer app, but I get enough small “wow” moments that I think a future version will be amazing.

Here are 5 predictions for how future versions of the watch will realize its potential.

  • The Watch (and smart wearables) will eventually transform payments. I have had Apple Pay on my iPhone for at least a year and never was impressed with it.  Apple Pay on the watch, on the other hand, is a wow experience.  I push a button on my watch and my payment in the store is complete. For the first time we have an experience that is faster and easier than pulling a credit card out of your wallet.  It will take time to build out the network effects but my guess is that using smart wearables like the Watch to pay will start taking off now that credit card payment systems are switching to chip readers which feel even slower than swiping.
  • The watch will be appreciated more by women.  One great feature of the watch is that it stops you from taking out your phone all the time.  If you get a call or text, instead of fumbling for your phone, you can just quickly peek at your watch.  This is a nice to have for men since their phone is in their pocket but is much more useful for women who usually keep their phone tucked away in a purse where the message gets lost.  I expect women will continue to be more excited about the watch as less bulky, more fashionable and smaller versions of it come to market. (You can see this starting to emerge with yesterday’s launch of the Hermes Apple Watch)
  • The watch (and its descendants) will eventually end the popularity of Fitbit and activity tracking devices.  The first version of the Apple Watch already has an activity monitor on par with Fitbit.  But on top of that it also comes with a lot more functionality (you can use it as a phone, send/receive text messages etc…).  Given that people will only want one (if any) device on their wrist, they’ll end up going for the one with the most functionality.  iPod/music device sales plummeted once the iphone came out and without a drastic change the same thing will happen to the activity monitors as smartwatches gain popularity.
  • The Watch (and its descendants) will usher in a number of new and useful apps that were previously not possible.  I have not yet seen a must-have 3rd party app on the watch but that might change now that WatchOS2 allows much more functionality.  Apps I could imagine would include:
    • Haptic feedback apps (or apps based on vibrations ) as their main feature. For example, musicians will soon have a vibrating metronome on their wrist taping them at a regular interval so that they can keep a consistent rhythm.  You could also imagine a “SpeakerTap” watch app where a public speaker (like a Presidential candidate during a debate or a salesperson during a big presentation)  could be discreetly notified if they are going off message.  
    • Gesture-based apps:  You could imagine a minority-report type app where waving your hand will cause changes on your screen or an app that turns a chopstick into a Harry Potter wand if you hold it in your watch hand.  Nintendo Wii and a bunch of other controllers already support this type of functionality but you still have to find and hold a controller. Anyone with a smartwatch now has an accelerometer, computer and gyroscope always on their wrist which makes the functionality much more convenient. 
  • Future versions of the watch will turn into 24/7 health-tracking devices.  Rumor has it that Apple really had to tone down what they put into the first watch to have it launch early 2015.  The next version of the watch will likely have GPS (which is already in other watches), and many more health sensors such as oxygen-reading and blood pressure sensors.  Given Apple’s recent forays into health, my guess is that they want to eventually become a complete 24/7 health-tracking device that will monitor your health (and the health of your loved ones) 24/7 and notify you of any changes before things become critical.

In short, I still think V1 of the Apple Watch is a niche novelty, but from what I have seen and experienced I am bullish on its future potential.

Creating vs. Disrupting

The word “disrupt” is everywhere these days. In Silicon Valley today you can’t spend more than 5 minutes in a coffee shop without hearing someone describe how their company is going to “disrupt industry <fill in the blank>.”  Entrepreneurs and business school students are repeatedly taught case studies of companies who ended up “disrupting” markets.  It’s even the name of TechCrunch’s popular startup conference.

Disrupting a market to improve it is definitely a difficult and noble cause.  But Silicon Valley’s obsession with focusing on disruption is leading people in the wrong direction.  You don’t build the biggest companies purely by focusing on disrupting an existing market.  You have to come at it from a different angle.

Here’s why:  Thinking purely in terms of “disruption” psychologically limits your direction and potential. If you are just thinking about disrupting an existing industry, you will tend to narrow your market size to just the current market’s customers and their needs.  And product-wise you are led to think of big improvements to current products (i.e. “How can I make a faster horse & carriage for people who currently use it” or “how can I build a better flashlight”?) vs thinking of something completely different.   For example, ten years ago, if you were trying to disrupt the personal flashlight industry would you have thought of developing an iPhone?

Most of the most successful Internet companies today did not find wild success by just taking over old industries — they found it instead by first focusing on creating a new market where nothing previously existed.  They targeted the customers who were not currently served and found a better way of serving them.  And in the act of creating that new market they ended up disrupting many existing markets along the way.

Much has been said about how Uber, Lyft and other ride-sharing services – today’s poster children for “disruption” –  have “disrupted”  the taxi industry.  Yes, people are now definitely taking Uber and Lyft instead of taxis. But they are also using those services in ways in which they never would have used a taxi.  Commuters are taking Uber and Lyft instead of driving to work and paying hefty city parking fees.  People are now choosing Uber over walking, taking the bus, or just not going somewhere.  And the designated driver is getting replaced by the Uber driver.  Uber/Lyft have not just replaced the Taxi service, they have made personal transportation so convenient and inexpensive that they serve a market need an order of magnitude larger than just the one served by yellow cabs.

Other highly successful companies have similarly disrupted an existing industry by creating a new one. Apple’s iPhone is used for so much more than a phone, AirBNB is addressing a much larger market than just hotels, Pinterest is used for much more than pinning images, and Facebook was used for much more than the original college picture directory or “Facebook”.

My advice to executives, product managers and entrepreneurs:  When you are thinking about building out your new enterprise, don’t limit yourself to “disrupting” an existing market and the people who are already served.  Instead, focus on creating a new industry.   Look at who is not being served and go after them instead.  You far more likely to come up with a much larger idea and business .

Takeaway:

  • Disrupting an existing industry is too narrow of an approach.  Think about creating a new industry serving people who could not originally be served.  You’ll end up with a bigger total market, a more creative solution and a willing audience eager for a new indispensable product.

Do You Believe in Magic?


sparkles

 

I have been helping a few startups try to reach product-market-fit and have encountered a common theme: everyone is too tactical.  Discussions quickly digress into incremental benefits and features.  Attend any company’s product meeting and you’ll often hear debates about adding Feature X vs Feature Y based on criteria like development time and which one the customer would prefer.

Want to build a truly great customer experience? Stop talking about features – or even benefits – and start talking about creating an overall “magical experience.”

Think of it from your customer’s perspective.  Ask customers to describe their favorite products and they will almost never list out features.  Instead they describe an experience that is so amazing and so over-delivers on expectations that they can’t help but feel like something magical just happened.

Some examples:

Uber:  Need a ride somewhere? You used to have to wait for a cab and hassle with cash payments.  Now just push a button.  A personal driver *magically* appears and takes you wherever you want to go.  When you arrive you just get out.  The rest is all taken care of.

Sprig/Munchery:   Need dinner? Don’t think about cooking or calling for delivery. Choose a picture of a beautiful meal prepared by a professional chef.  Push a button and it *magically* appears at your house in 30 minutes.

Amazon Prime:  Need to buy something?  Don’t deal with the hassle of driving to a store and parking.  Tell this website what type of item you are looking for.  Then push a button and in 48 hours it *magically* appears on your doorstep.

At their core, almost all of the most used Internet services today are defined not by their features but by an experience so impossibly simple it just seems magical.

So what makes an experience magical?  Three key elements:

  1. It’s absurdly simple. Something as simple as “Push a button” or  “type in a word” or “wave a magic wand”.   Any work required by the user and the magic goes away.
  2. It’s doing a task that is normally hard. The harder the task feels to begin with, the more magical it will feel to make it simple.
  3. It’s helping solve an important need.  If the task you solve is not important you’ll get a nice “wow” but it just won’t have the same emotional appeal as fixing something that matters.

Before you create incremental features, take the time to flesh out the ideal “magical experience” for your customer.  What very difficult, important task are you going to make impossibly easy?  Ask your customer “If you could push a button or wave a wand, what would you like to have happen?” It’s a much easier way to figure out their most pressing problems and their ideal solution.   Then back into what exact product changes – feature additions, changes AND removals –  you need to make that happen.

Takeaway:

  • When building your roadmap, rather than focusing on features, focus on creating an experience your customer would describe as “magical” – then back out the minimum amount of features or changes to make it happen and remove everything else.