Making money from things customers love – balancing staying in favour with staying in business

The Foundation Forum. Thursday 12th March. Written up with the help of Simon Caulkin
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You’d have to say it feels like an age ago. The evening of 12th March when we were still allowed to gather in person, a day before the Cheltenham Festival ended and 10 days ahead of official lockdown. We did have 10 people who joined us via a Zoom link to add to the 90 or so in the room.

While the situation was interesting it wasn’t alone. The discussion was also compelling, examining a question that superficially sounds easy to answer – when your business is all about things customers really care about, how do you make enough money for it to be a lasting success?

The tricky bits emerge as the implications of this kind of set-up become clear. Because your customers are highly committed, they are extremely sensitive to the quality of what’s provided and the spirit it’s provided in. Anything veering towards commercial exploitation and away from authenticity will cause a loud clang and fast-growing cynicism. Your competition will be strong. Maybe volunteers and enthusiasts on the one hand who don’t care about financial reward, and large organisations on the other using the love of the subject-matter to grow customer relationships and another part of their business model to turn them into cold hard cash.

We had three excellent speakers, one of whom was a wonderfully game and very impressive last-minute substitute for Fiona Reynolds. She had been planning to share the story of her time as Director General at The National Trust but was laid low by a serious chest infection that was nothing to do with the virus. The three we heard from were therefore:

• Justine Roberts CBE, co-founder and CEO of Mumsnet, the website for parents which, 20 years in, has 10 million highly engaged users whose straight-talking, no-nonsense attitude presents commercial opportunities as well as challenges given they have no desire to be ‘commercialised’

• Richard Gomersall, CEO at GreenAcres Group, a cemeteries and ceremonial services business and former MD at Co-op Funeralcare (where we had worked with him). He explored the nature of helping people at a moment of intense grief around a person they loved and how, given the taboos and sensitivities, you learn, improve and make sustainable a healthy business in this field owned by VCs

• David Magliano MBE, former MD for Membership, Marketing and Consumer Revenue at The Guardian where he oversaw the launch of the cause-led, voluntary approach to asking readers to pay, an idea attracting industry scepticism but contributing in 2019 to the announcement of the business’s highest revenue for 10 years and first operating profit since 1998

So where did we get to? How DO you make money from things customers love, one of which most certainly isn’t a killer virus?

The evening’s discussion follows in summed up form by Simon Caulkin

In the early days of personal computing, there was a cult word processor called WriteNow. WriteNow was tiny (it had to be to fit on a floppy disk), blindingly fast, and a joy to use. Users loved it – and mourned it bitterly when unloving management left it to be squeezed between Apple’s inferior but ‘official’ MacWrite, and Microsoft’s Word, which no one liked but 30 years later remains the elephant that no one has managed to eject from the room.

With proper parenting, WriteNow might have rewritten the history of personal computing. But, as emerged from an absorbing Foundation forum in March, making sustained returns from products that people actually love, as opposed to quite liking or finding quite useful, turns out to be complicated, for reasons that aren’t, or weren’t, necessarily always obvious at the outset.

One reason, too late for WriteNow, is the quality of parenting. Take, appropriately, the parenting platform Mumsnet. Mumsnet was the brainchild of Justine Roberts, or perhaps more accurately of Roberts with input from stroppy year-old twins whom in 2000 she took on a disastrous holiday to ‘the wrong destination, the wrong resort, taking all the wrong stuff, including the wrong children, quite frankly.’ (It’s a very funny presentation)

Roberts had her lightbulb moment when she heard every other family there chorusing her groans. She needed to connect parents to each other before they got to places like this. They needed to be able to share their inside knowledge and real-world learning. And she would do this in the form of a website (this was the height of the internet bubble).

Paradoxically, another lightbulb went on when her pitch for the £4m she had wanted to set it up was turned down flat. Dashing any hope of a sharp exit and a yacht in the Caribbean, it switched the site to the slow lane that eventually led to enormous painstakingly built success. No money and no revenues meant that Mumsnet couldn’t have any costs either. ‘It was back-bedroom stuff, very cheap childcare,’ recalls Roberts. ‘So we had to go at the right pace, nurturing our community’.

It kicked off and continued for some time with very few visitors other than Roberts asking herself multiple questions under various names. ‘Luckily, I had lots of questions because I had these twins and no idea what to do with them’. She’d sometimes get answers in the real world and insist her friends gave them to her again on the website so everyone could see. Eventually other parents started to find this useful.

Mumsnet had no choice but to grow organically and by word of mouth – and crucially, to focus on users, who soon took over from the founder as (often challenging) participants and (importantly) stakeholders.

The platform now makes money, but on its own terms. ‘We didn't have investors pushing us to take on costs and make profits early on by exploiting our user group,’ Roberts explains. ‘We could turn down the wrong kind of advertising, the wrong kind of partner or cheesy format. Moreover, we had this 24/7 focus group who gave us amazing advice on what they wanted, how they wanted it, and what their problems were’ – in the early days even helping to keep the site afloat financially by sending in cheques when a desperate plea went out.

’They generate our content for free and they are an always-on critical panel of opinionated, ballsy women. So it would be a) impossible to ignore their opinion and b) inadvisable to,’ says Roberts. In hindsight, although not at the beginning. The moral of the story is simple: don’t mess with Mumsnet’s extended family.

On the other hand the Guardian, the subject of a second forum study, had both costs and a need for cash – lots of it. While there was no doubting the loyalty of its readers or the devotion of its parent, the Scott Trust, declining ad revenues, falling print sales and a long-standing determination not to put its journalism behind a paywall left the group, which also owns the Observer, staring at a black hole in its finances.

How to fill the gap without exploiting or turning off users was an urgent question, made harder to answer by the fact that the papers knew surprisingly little about their readers: as David Magliano, then Guardian MD for membership, marketing and consumer revenue, noted, the paper was a strictly business-to-business affair through relationships to advertisers, the only direct link to consumers being the letters page.

The paper’s original solution for filling the funding gap was a membership scheme focused on spoken-word events in a dedicated space, complete with bar and restaurant – ‘think TED talks meets Soho House with quinoa’, jokes Magliano. The formula looked promising, with the business plan showing profits by year three. A building was found, investment of £10m authorised and a programme of events successfully trialled in London. At which point it all fell apart.

One problem was that the new auditorium was too small for the numbers the London events attracted. Another was that attendance at events didn’t automatically translate into membership: although the London-only programme was attractive, it couldn’t deliver the bums on seats required, while a national programme was both too dispersed and too expensive to work commercially. Making matters worse, ad revenues had fallen off a cliff, so the new building was suddenly required to more than triple its returns to fill the gap. It was a perfect storm.

Magliano’s team was angst-ridden, trying to find the clues to get better retention and willingness to pay. They had an unspoken underlying assumption – that the more members did while they were members, the more value they got and the more likely they were to renew. So how could they get people to go to more things?

At this point, a journalist (‘she deserves the credit’) asked the question that was hiding in plain sight. There was a small but significant stream of members who joined and then renewed without attending any events at all. Zero value. Surely?

So why would they do that? The answer, says Magliano, was instantly obvious and a total surprise: they were signing up to support the paper’s core purpose, the commitment to public-interest journalism.

Looking at it exclusively through the lens of events, confesses Magliano, the group had spent a ton of money finding answers to the wrong question: ‘It never occurred to us that people would financially support us for something we were doing already’. In a typically back-handed way, fortune has played a part, with Brexit, Trump and two general elections substantially raising the stakes for the paper’s readership. But the fact is that one million people have subscribed to the renamed ‘contribution strategy’, bringing the paper’s last year to breakeven for the first time in two decades. And they know a lot more about their customers than they did before.

Richard Gomersall, CEO of GreenAcres, the third speaker, runs a cemeteries and burials business. Right there in the conjunction of ‘burials’ and ‘business’ is his ticklish problem: making money from death. Of the four customers of the business – family, funeral directors, the celebrant and the deceased – arguably the most important is the last, who obviously isn’t around to give instructions or score the quality of the proceedings. What’s more, few people are passionate about death or even willing customers, which means that conventional marketing is a non-runner. ‘When I got involved in Greenacres,’ sums up Gomersall, ‘it was a business losing money with a disenfranchised team owned by VCs wanting to hit targets. So that was our conundrum: staying in favour [with customers] while making a commercial business model and doing it all under time pressure.’

One big obstacle was dealing with the many taboos around death and funerals. But while direct promotion was out, engagement with customers and employees brought home how much unspoken inhibitions were preventing people saying honestly what they wanted. ‘"I wish I'd known I could have had a brass band or doves released." But because they were concentrating on not getting it wrong, they never thought about what it would take to get it right. We call that “secret disappointment”’, says Gomersall.

Disarming the taboos meant finding a way to communicate the story in a way that didn’t make people feel remotely like they were being sold to. So began a huge programme of listening to find out what the stakeholders liked, disliked and really wanted.

Out of this came a range of innovations and options, more competitive pricing, and comprehensive aftercare. The commitment of employees has played a huge part, not least in coping with the lockdown, when demand for burials in some areas has gone up tenfold. ‘The teams have been just amazing. They’ve risen to every challenge and demonstrated the best of humanity.’

Customers are as pleased as the investors. ‘We've increased turnover fivefold,’ says Gomersall. ‘We've taken it from losing money to making substantial profits. We've seen numbers of services across our sites go from 400 to nearly 3,000 a year. Probably more important, we've got 100% Trust Pilot five-star ratings, because that's what our families think about us. When I talk to the team, the constant feedback is, "We're glad we've gone on this journey. We're making a difference. We're now part of something that's changing history".

All business success stories involve getting close to customers, or closer than they were before. That sounds obvious, and is, with hindsight. Getting to obvious can be anything but, even for things people really care about. Suffice to say it means asking yourself and others a lot of questions. But asking and answering questions is itself tricky. Do you really need £4m? (It depends who’s talking.) Who are the real customers for our service? (A dead person? Really?) What’s the job they want it to do, and how much will they pay for it? (What do you mean?)

At GreenAcres just working out who the customers were brought surprising and revealing results – they all had needs that had subtleties and they were all open in different ways to being won over and making an active choice when someone really understood them.

Mumsnet got to its own obvious through flat ‘no’ and ‘nothing’ answers to the funding and paid-for questions.

And the Guardian expensively discovered that getting highly committed customers to pay for an event, while initially gratifying, revealed nothing useful at all.

Warren Buffett once remarked that many smart people learned the hard way that ‘a long string of impressive numbers multiplied by a single zero always equals zero’. In similar vein, however many replies you get to a customer survey, if the question was wrong all the answers will be too.

The Foundation’s view

For us these were especially great stories to hear.

We are called The Foundation because of our belief that being customer-led in this way is the foundation of long-lived success. Precisely what Justine, and in their own ways David and Richard, described. Taking time and care, applying a genuine desire to do a better job out there, then happily finding that there is a route to commercial return that emerges thereafter rather than as the starting point. The big memories for us from the evening were these three:

1. Even when an area is highly emotionally charged, like a funeral, you can learn from customers if your intent is genuine and you’re emotionally aware.

All three speakers described a lasting fascination with what their customers really cared about and how they behaved. In Richard’s case, he showed how he and his team asked and observed, picking up clues they could act on then learn more as they went. Funeral Directors were crucial and had principles about not recommending a specific provider of services like a cemetery.

But they did care about their clients’ financial wellbeing so would let them know the cheapest option. In this case that was a version of a cremation, not something a cemetery provides – well, not conventionally, but actually it WAS possible. And then it turned out the whole offer could be improved, providing a nicer environment and, crucially, time and space to avoid the production-line feeling of half hour services. They also improved the support they gave to the others involved – the family but also Funeral Directors and the clergy or celebrant too. They’re all just people with their own worries and pressures to deal with.

2. When you really need to encourage customers to change behaviour willingly but significantly, work out how by first looking for customers already doing a version of it.

David described The Guardian’s long and difficult search for a viable business model given their principled commitment to having no paywall. It meant they had little subscription income and they also had collapsing advertising revenue even online. They recognised the ‘love’ their committed customers had for the brand and felt a membership scheme could make the affinity concrete. They also assumed that membership would need to offer some kind of distinct and tangible value in exchange for payment. Events were the favoured route.

Thousands would come to the early experiments. Encouraged, the team learned more – people coming to at least two events were much more likely to renew, so that became a preoccupation. Sadly even the growing appeal wasn’t sufficient to make the business viable, at least at the scale needed. Until… one of the editorial team asked an obvious-sounding question that wasn’t obvious. A few members were renewing without going to any events at all. So she asked why that might be. It turned out they saw high quality, independent journalism and a social good and they wanted to support it. The Guardian team had been trapped by what had become an inside-out events lens, assuming they had to offer extra. It turned out they just had to make it easy for people to express the support they already felt, now made concrete financially. Profitability, eventually, followed.

3. Being forced to grow slowly means you have to learn what really matters to customers, leading to a business build on solid foundations.

When Justine started Mumsnet back in the year 2000 UK business was consumed by a full-on mad frenzy of get-rich-quick investment. Her idea, based on personal insight about the benefits of parents helping each other, was taken to market and fundraising started for £4.5m. The bubble burst and she raised none. She was left having to grow organically and minimally – focus on customers, minimise costs.

It meant she learned from real-life engagement – what it took to start a conversation, how to get others to join in, how to use the purpose of Mumsnet – to make parents lives easy – to ask the more antagonistic to back-off. If she’d had a VC backing her she’d have been challenged to up the burn rate, benchmarked against others in a mad rush and pitched, unwittingly, into a numbers game where 9 in 10 failing is part of the model. A far more considered step-by-step approach led over many years to significant customer scale. But it still didn’t make much money. The commercial side had to catch up. Again the deep understanding of Mumsnet customers and the way Mumsnet creates value for them guides success in this area – what works is authenticity. Ford leant customers a car and asked for their honest feedback, Lidl did the same and both shared the video feedback to great, genuine acclaim. Brands are having to learn from Mumsnet, they can’t just impose a broadcast style on a thriving community. The reward is differentiation and engagement for them, and a way of making money that’s in tune with the community’s values for Mumsnet.