$50Billion Lessons From The Former Head of PricingPackagingProduct at Vista Ep 164

Summary Notes


In a dynamic exchange, Alex shares insights gleaned from attending SAS Academy and conversing with Marcus Rivera, former head of pricing, packaging, and products at Vista, regarding the importance of customer value optimization. Alex discusses how Vista's guarded standard operating procedures (SOPs) and customer scoring strategies have inspired changes at his company, Gym Launch. By analyzing customer data, Gym Launch identified traits of high-value clients, leading to a refined qualification process that resulted in fewer but more profitable and easier to serve clients. Alex emphasizes the significance of setting accurate expectations and the impact of a well-orchestrated onboarding experience on customer retention and satisfaction. He advocates for businesses to learn from these strategies to enhance operational efficiency and customer lifetime value.

Summary Notes

Introduction to SAS Academy Event and Networking

  • Speaker A attended SAS Academy, an event hosted by Dan Martel.
  • Speaker A was seated at the speaker table and interacted with notable individuals in the software industry.
  • Marcus Rivera, a former head of pricing, packaging, and products at Vista, was present at the speaker table.
  • Vista is a major private equity firm specializing in software, with a portfolio generating over $50 billion annually.

So the first two days were actually events that we attended and spoke at, which is at SAS Academy, Dan Martel's event.

The quote explains that the speaker attended and spoke at an event called SAS Academy, which is related to the software industry and hosted by Dan Martel.

And one of the people who was at the speakers table with me was a man named Marcus Rivera.

This quote introduces Marcus Rivera, a key figure in the software industry, highlighting his past role at Vista.

Vista is, I think, the world's largest private equity firm for software.

This quote provides context on the significance of Vista in the software industry, emphasizing its large scale and impact.

Vista's Approach to Value Creation

  • Vista's standard operating procedures (vsops) are highly confidential and essential to their strategy.
  • Access to vsops is restricted and controlled through advanced security measures.
  • Vista's goal is to triple their investment in three years, a strategy referred to as "three and three."
  • Marcus Rivera shared the importance of simple systems and processes in creating value.

And so they have something called vsops, which is Vista's SOP.

The quote introduces the concept of vsops, Vista's proprietary standard operating procedures, which are critical to their operational success.

Their whole mantra is tripling their money in three years.

This quote summarizes Vista's investment strategy, highlighting their ambitious financial goals.

Customer and Prospect Scoring

  • Many companies fail to score leads, prospects, and customers based on potential value.
  • Scoring involves analyzing various characteristics and behaviors to categorize individuals.
  • Vista focuses on identifying and expanding the segment of high lifetime value (LTV) customers.
  • Marcus Rivera emphasized that even the most advanced companies adhere to fundamental practices.

One of the things that most companies don't do is they don't score their leads, right?

This quote points out a common oversight in business strategy, where companies neglect to evaluate and categorize potential customers based on value.

What Vista does and what they count on is the fact that when they go into a company or when they're assessing a company in the diligence process, that they're going to learn more about that company, that the founder and the people in that company even know about it.

The quote explains Vista's approach to due diligence, asserting that their analysis can uncover insights about a company that even its founders may not recognize.

Application of Vista's Strategies at Gym Launch

  • Speaker A applied the concept of customer scoring to their business, Gym Launch.
  • Analyzed a 90-day period to identify characteristics of the least and most successful clients.
  • Discovered that gym ownership and full-time commitment correlated with better outcomes.
  • The insights from this analysis are used to prioritize and serve high-potential clients more effectively.

And so let me tell you how we're applying it right now.

This quote transitions to the practical application of Vista's strategies, specifically how the speaker implemented these ideas in their own business.

What we did is we took the last 90 days [...] and we looked at all of our exits, all of our escalations with the people who kind of sucked the most are people who didn't get the most results, whatever way you want to put it.

The quote describes the process of evaluating customer data over a recent period to understand the traits of less successful clients.

The people were the hardest to serve and who got the least results using our program.

This quote further clarifies the criteria used to identify less successful clients, focusing on those who were difficult to serve and achieved poor results.

Business Strategy: Qualification and Customer Selection

  • The importance of qualifying customers to ensure they're the best fit for the product or service.
  • The impact of customer qualification on sales volume and operational complexity.
  • The relationship between customer qualification and customer success.

"Once we qualify prospects that they had to have at least 25 clients, they had to have a signed lease. They had to be a full-time gym owner, right? And ideally this was optional, but ideally have one employee or more who worked with them so that they could share the load and so that they could actually focus more on selling and working leads, et cetera."

This quote outlines the specific criteria used to qualify customers, emphasizing the need for a certain level of business development and operational capacity.

Sales and Customer Experience

  • Reduction in sales as a direct result of stricter customer qualification.
  • Improvement in customer experience and a decrease in customer service escalations.

"Our sales decreased from over 100 a month in terms of gyms to about 40 to 50. [...] The people who started after those qualifications, we've had zero escalations from those people."

The quote highlights the trade-off between the number of sales and the quality of customer experience, suggesting that fewer, more qualified sales resulted in no customer service issues.

Operational Efficiency and Profitability

  • The impact of customer qualification on operational efficiency and team workload.
  • The correlation between customer quality and profitability.

"So we had this huge vein of people who were taking up the vast majority of my team's time and were actually worth less. They made less. They were worth less to us."

This quote reflects on the inefficiency of servicing less qualified customers who demand more resources but contribute less to profitability.

Business Model Adjustments

  • The trial of different business models and their outcomes.
  • The decision to revert to a previously successful business model after a trial period.

"So after that October date, we switched back to the defined in program, which is what we did for three years. [...] It didn't work nearly as well as having a defined end."

The speaker shares the experience of experimenting with a new business model and eventually returning to the original model that had proven to be more effective.

Customer Value and Pricing

  • Higher qualified customers are willing to pay more for better service.
  • The relationship between customer qualification and the value perceived by the customer.

"This new vein of customer who's higher qualified is paying more, is making more, requires less work."

The quote implies that by focusing on a more qualified customer segment, the business can command higher prices and reduce workload, leading to increased profitability.

Reputation Management

  • The consequences of lowering qualification standards on reputation.
  • The importance of maintaining high standards for customer qualification to ensure a good fit.

"If you lower the bar too much, then what happens is you bring in people who are not qualified [...] they're not making as much, which means that then they say, like, your thing is not as good."

The quote discusses how accepting less qualified customers can lead to a negative perception of the business, as these customers are more likely to be dissatisfied and vocal about their experiences.

Reflecting on Past Mistakes

  • The speaker reflects on the time taken to realize the importance of customer qualification.
  • The value of learning from past mistakes and applying those lessons to business practices.

"Learn from my stupidity. Hopefully you can start doing this with your own stuff."

This quote encourages listeners to learn from the speaker's mistakes and be more strategic in their customer qualification processes.

Audience Engagement and Podcast Growth

  • The importance of audience engagement in growing a podcast.
  • The speaker's call-to-action for listeners to rate and review the show.

"Hey, if you're a return listener and you have not rated or reviewed the show, I want you to know that you should feel absolutely terrible about yourself and everything else in the world."

Although delivered humorously, this quote emphasizes the role of the audience in supporting and spreading the word about the podcast.

Extracting and Amplifying Value

  • Vista's success is attributed to their ability to extract and amplify value from their acquisitions.
  • They focus on understanding customers better than the businesses they buy.
  • Analyzing data from customers who leave can reveal insights into who the good and bad customers are.
  • Identifying customer traits such as age, job, goals, initial investment, and continuity plans is crucial.

"It's because they know how to extract and amplify value."

This quote emphasizes the core strategy Vista employs to grow their wealth, which is the extraction and amplification of value from their investments.

"And the biggest thing is not change. I mean, they do shit, they tweak the pricing, they find the right buckets, et cetera, but they do that by analyzing the customers better than the business that they're purchasing, even knows their own customers."

This quote highlights that while Vista makes adjustments like pricing tweaks, their primary strategy is to deeply understand and analyze customer data better than the original owners of the business.

Customer Data Analysis

  • The best data comes from customers who have left the business.
  • Analyzing leaving customers' data provides insights into character traits and behaviors.
  • This analysis helps in distinguishing between good and bad customers.

"Look at the data from the people who left your business."

This quote suggests that valuable insights can be gleaned from examining the characteristics and patterns of customers who have discontinued their business with you.

Customer Lifecycle Decision Points

  • Customers make critical decisions about staying with a service at two points: the beginning of the lifecycle and the onboarding/implementation period.
  • Orientation and onboarding are key to customer retention.
  • A choreographed onboarding experience can significantly increase customer lifetime value.

"Customers in a recurring based business or really, any business, decide whether they're going to stay at two points at the beginning of your lifecycle..."

This quote identifies the crucial moments when customers decide their loyalty to a service, which are at the start and during the onboarding process.

Importance of Onboarding

  • The onboarding process should not be rushed and must be given importance.
  • Expanding the onboarding period can lead to increased customer lifetime value.
  • Personalized communication and support during onboarding are vital.

"And so if your onboarding is rushed, your orientation is rushed, then expand the time period because it's going to massively multiply the lifetime value of that customer..."

This quote emphasizes the importance of a thorough and deliberate onboarding process to ensure customer satisfaction and retention.

Setting Customer Expectations

  • Properly setting and fulfilling customer expectations increases trust.
  • Overpromising, or "selling hot," can lead to unmet expectations and dissatisfaction.
  • It's important to sell towards sustainable behavior and long-term change.

"Expectations are everything. And if you set proper expectations for what is going to happen next, and then you fulfill that beautifully, your trust with the prospect goes up."

This quote underlines the significance of setting the right expectations for customers to build trust and ensure satisfaction with the service.

"It's where you set expectations so high it's impossible for you to ever fulfill or for you to hit that with the majority of customers..."

This quote warns against the pitfalls of setting unrealistic expectations, which can lead to a breach of trust and customer loss.

Expectation Management in Marketing and Sales

  • Emphasizing average results rather than exceptional ones in marketing materials.
  • Importance of setting reasonable expectations to avoid customer disappointment.
  • Benefits of underselling potential results for customer satisfaction.
  • The concept of selling based on the bottom 25% of results to exceed customer expectations.
  • The negative impact of high expectations leading to dissatisfaction despite good results.
  • Aligning expectations with long-term goals rather than short-term achievements.

"We're really no longer focused on saying, like, hey, look at these ten people who made 100 grand in their first six weeks with us, right? We have those. We totally do. But the thing is, but what are the averages, right?"

This quote highlights the shift from showcasing exceptional success stories to presenting average results in marketing. It emphasizes the importance of setting realistic expectations for customers.

"And so that way, if and when you do go above that mark, then their expectations are reasonable and you can over deliver."

The speaker suggests that by setting average expectations, any result that exceeds the average will be seen as over-delivering, enhancing customer satisfaction.

"It's amazing what happens if you set really high expectations. And this is where someone makes $20,000 in their first month and is disappointed with gym launch."

This quote demonstrates the problem with setting high expectations; even good results can lead to disappointment if they fall short of the promised outcomes.

Customer Qualification and Long-Term Value

  • The importance of qualifying customers to ensure a good fit for the service.
  • Seeking customers with characteristics that align with successful outcomes.
  • Avoiding demographics that are not a good fit for the business model.
  • Potential for creating alternative products for demographics that require a different approach.

"We are now heavily qualifying people on the front end, so that we have longer lifetime value, we have superior client outcomes, we have less operational complexity."

The speaker explains that by carefully selecting customers, the business can ensure better long-term relationships, outcomes, and reduced complexity.

"We found out that entrepreneurs are not a very good demographic for us."

This quote reveals a strategic decision to avoid a specific demographic that does not align well with the company's services, indicating the importance of understanding the target audience.

Sales Strategy and Onboarding Process

  • Adjusting sales tactics to manage expectations from the outset.
  • Importance of a structured onboarding process to ensure a smooth customer experience.
  • Continual improvements to the orientation process to make it more effective.
  • Ensuring customers understand the next steps in their journey with the company.

"And so it's like, cool, we're not going to service them, right? Or we're not going to service them in this way."

The speaker mentions a strategic choice to not service a certain demographic or to offer them a different type of product that suits their needs better.

"And we're still working on this in making the onboarding and implementation even more choreographed."

This quote emphasizes the ongoing efforts to refine the onboarding process, highlighting the importance of a well-organized customer introduction to services.

Application of Lessons and Customer Retention

  • Encouraging the application of these lessons to other businesses.
  • The aim of improving customer quality and setting proper expectations.
  • The goal of over-delivering to foster long-term customer relationships.
  • The speaker's hope that sharing these insights will be valuable to listeners.

"So that you can increase the quality of the customer, set the expectations properly, and then over deliver on the expectations that you've set so that they can make the decision in the first two or three meetings with you that they're going to stick with you for the long haul."

This quote encapsulates the overall message of the transcript: by managing expectations and delivering quality service, businesses can secure long-term customer commitment.

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