Customers are the most important assets in every business. This is why customer acquisition and retention are essential to the growth of an organization. However, with these individuals having a lot of choices to make from a number of vendors, it becomes hard to retain old customers and onboard new ones. In fact, an article published by the Harvard Business Review said that acquiring new customers costs 5-25 times as much as keeping old ones.
Clients want to have value for their money. According to Business Dictionary, customer value is the difference between what a customer gets from a product, and what he or she has to give in order to get it. So, for a customer to stick with your brand or decide to use it, they have to feel that you provide the best value among all the choices they have available. In a world of choice, value is subjective, and so, a number of factors are taken into consideration in various forms by different people.
For example, in Nigeria, when a person decides to use a mobile service provider, they have to make a decision between four main telcos and a host of smaller telecommunication firms. Prices of the sim card to most are insignificant when compared to the pricing of the data plan or the number of minutes a call would last when using that certain provider. In fact, some customers even make a choice based on what a large number of their friends or family members use (herd mentality). Others just make their choice based on certain data or call plans provided by the networks.
Now, once the customers have been able to determine that your business is the best choice for them, they will stick with you. However, it is also important for you, the entrepreneur to determine the value of that customer. It is illogical to spend more on customers who offer you less value than those who offer you more, be it in present or future gains. This is why it is important to know the value of your customers to prevent important ones from leaving and repositioning your finances to target those that provide the greatest benefits.
The key metric in measuring the value of a customer is referred to as Customer Lifetime Value (CLV). Hubspot defines it as “the metric that indicates the total revenue a business can reasonably expect from a single customer account. It considers a customer’s revenue value, and compares that number to the company’s predicted lifespan”. Basically, customer lifetime value is the total worth of the customer to the business throughout the period the individual or firm remains your customer. Knowing the CLV will help you improve your profit margins and ultimately drive growth. To calculate the customer lifetime value:
Calculate the average purchase value: This is done by dividing the total revenue in one year by the number of purchases made within that same year. So, as a restaurant owner, if a particular kind of customer, John, buys food 5 days a week from your restaurant at a constant price of N600, in a year, that customer would have made you N144,000. The customer has also purchased food 240 times (5 days/week x 4 weeks/month x 12 months/year). Hence, the average purchase value is N600. Once you do that for one customer, you can do it for say, ten more, and just get the average of all of them.
Calculate the average purchase frequency rate (PFR): This is done by dividing the number of purchases over the time period by the unique customers who made purchases during that time period. If you are a restaurant owner, customers may come once a day to eat or twice. However, sometimes, they may decide to eat somewhere else or may get stuck in traffic and not eat at your restaurant. In such a case, you calculate how many times John visits your shop in a year and divide it by the number of people you are surveying (i.e. 1 person). So, since it is only one kind of customer you are measuring and he visited 240 times a year, the average PFR is 240.
Calculate customer value: Here, you simply multiply the average purchase value and average purchase frequency rate. So, for John, his value to your business yearly is N144,000.
Calculate the average customer lifespan: This is done by finding the average of the number of years a customer purchases a product/service from you. So, if you are selling near an office, there is a high possibility that the average customer lifespan could be 3. That means after 3 years, such a customer, like John, would stop buying from you- most likely because he got fired or got a new job elsewhere. If you sell close to a residential area, the average customer lifespan could be up to 5.
Calculate the customer lifetime value: Assuming John buys from you during his lunchtime at work every day, the lifespan is taken to be 3 years. Multiply the average customer lifespan with the average customer value. For John, it would be N144,000 multiplied by 3, giving you N432,000. Thus, for the 3 years, John would be with you, he would give you N432,000.
Once you are able to segment customers into Johns or Emekas or Wunmis, you would be able to get a sense of the value of these categories of customers. To take it further, you would be able to predict which customers you should focus on marketing to frequently and which you should focus on simply keeping happy because as posited above, customers differ. Some buy in bulk and others are frequent low-cost buyers. So, for the restaurant owner in the example above, it would not make sense to heavily spend on marketing on John.
Nonetheless, if there was a Wunmi who bought only twice a month but bought for her entire staff of 30 people, it is vital to keep such customer very happy, since it is easier for that person to stop buying from you, given their low average purchase frequency rate. Remember, if the cost of serving such customer exceeds the benefits gotten, you may be making a loss, so it is also important to learn how to balance your strategies.
In this era of increased reported sexual harassment cases, heightened by the #MeToo movement, firms need to be proactive in handling romance in the workplace. Google, one of the largest companies in the world, was caught up in the middle of a storm last year when it was revealed that it paid out $90m to an executive accused of sexual misconduct. In retaliation to this, roughly 20,000 workers walked out of the corporation’s offices across 50 cities. Due to the protests, Sundar Pichai, CEO of the tech firm, announced some changes- policies like forced arbitration that has pushed employee complaints into secretive hearings, had become optional.
Many Nigerian firms do not have a policy on workplace romance, and are very prone to situations like this, especially when the case turns to harassment and it becomes against a lady. Now, even with Google having company rules like strongly discouraging employees from involving themselves in relationships with colleagues that they manage or report to, and providing regular training to executives to address this topic, they still ended up getting the short end of the stick. So, how should employers handle romance at the office?
Acknowledge that it happens
With the conservative culture of the Nigerian society, the idea of a relationship existing between two coworkers is not taken seriously. A number of companies fail to acknowledge it in their HR documentations, despite such romance being much popular than people care to believe. In a 2017 SHRM survey, 57% of individuals that responded admitted that they have engaged in a romantic relationship at work at some point, with 55% of HR professionals saying that marriage was the likeliest outcome of the office relationships they experienced. Despite all this, only 42% of companies have developed a formal, written, workplace romance policy. In Nigeria, not only are there more firms without such policy, the ones that do acknowledge it have a very concise plan, that in most occasions, just outrightly bans it from occurring.
Don’t forbid workplace romance without caveats
In any situation that a firm deems it fit to officially prohibit relationships at the office, it always ends up being counter-intuitive. Employees will find a way to keep it secret. They will be romantically involved in one way or the other. Same-level relationships should be permitted as long as both partners keep their personal lives personal, act professionally at work, and neither of them is in a supervisory role.
What should be done is to ban supervisor-subordinate relationships, due to the potential conflict and legal repercussions that could arise. No employee should be permitted to date his/her direct manager, as conflicts of interest would arise between their personal and professional lives. Any promotion or compliment that comes from the manager to the colleague they are in a relationship with would be interpreted by others as unfair treatment and this could cause a lot of friction between workers. Penalties should be given to defaulters.
In the scenario that these two become upfront to the HR officer about it, the best thing that can be done is to move one of the partners to another department, and if this cannot be done, this should be communicated to them whilst being advised to call it off else penalties occur.
Create/review policies on workplace romances
The era of innocently thinking two individuals who broke up after a bad relationship and still work together would remain professional without some laid-down regulations is over. Be proactive and create or review the company’s stance on romance in the workplace (including, consent and sexual harassment), and then share it with every single member of staff. Moreso, employees should be provided the opportunity and privacy to disclose any relationships that arise with the HR officer.
It is better to be protected by law than being open to suits that may arise. For example, rules on Public Display on Affection (PDA) and consent should be explicitly written down. The company does not want to have one of its best employees being embroiled in a rape scandal because he/she did not understand consent. In fact, companies like Google and Facebook have adopted a one-chance strategy as a rule for their employees, wherein they are only allowed to ask their co-workers on dates only once, ever. This is to prevent accusations of harassment. Whilst a one-time dating ask is not feasible in the Nigerian setting, especially given how people feel about saying “yes” on the first time being asked out. Develop policies that are in-tune with the society and can prevent any cantankerous reactions that could occur.
Train Human Resources (HR) managers regularly
The HR manager/officer is in charge of handling relationships in the workplace, and as such, they should be provided regular and adequate training in conflict resolution and office romance. They would be the ones to explain the firm’s stand on consent and PDA to the other staff, and what is and isn’t acceptable workplace behavior. They should also mediate after break-ups to create a professional working relationship post-dissolution between both parties. In most cases that graduated from romance to sexual harassment/assault, the accuser always believed that the sexual activity was consensual. This is why it is important to nip it in the bud.
Launching a startup is not easy. Keeping it running and even growing at a sustainable rate is even more difficult. According to Forbes, 90% of startups fail. In Nigeria, in particular, 80% of SMEs are said to fail within the first 5 years.
For Paul Graham, the founder of arguably the world’s most famous incubator, Y Combinator, when writing about the 18 mistakes that kill startups, he listed single founder, bad location, marginal niche (that is, building a product or offering a service to a very small, uncertain target market to avoid competition), derivative idea (that is, imitating existing ideas without any change) and obstinacy (or in simpler terms, inflexibility) as the first five. To him, having 2 or more cofounders is crucial to the success and survival of any business. He rightly points out how only a handful of successful companies have single founders.
Look at Nigerian businesses like Tizeti, Piggy Bank, Jobberman and Budgit, or their international counterparts like Apple, Uber, Microsoft, and Google. Think of one thing they all have in common, and you would realize that before anything else, they have multiple co-founders.
TechCrunch, in an attempt to dispel this as a myth, conducted a research in 2017, utilizing Crunchbase’s API into this so-called successful companies, looking at two arbitrary measures of success. The first group being companies that raised more than $10 million in funding (7348 companies), and the second group is those that exited their businesses, either via an IPO or acquisition (6191 companies). From the data sets pulled from both categories, the average number of founders of “successful” startups was 1.79, which can be approximated to signify the need for 2 co-founders.
The question then becomes, why do you need a co-founder?
Complementary Skills: Except you are a rockstar like Jeff Bezos, you may not be skilled in either one of programming (assuming it is an IT-based firm), product development, sales, marketing, user experience, etc. Most businesses require a multidisciplinary team.
The world’s largest company, Apple, would not be in existence if the trio of Steve Jobs, Steve Wozniak and Ronald Wayne not complemented each other’s skills and worked together. Steve Wozniak, singlehandedly, designed and built the first computers, Apple I and Apple II, piece by piece, as well as the printer interfaces, serial interfaces and floppy disks. Steve Jobs, on the other hand, was the face of the company and went out pitching to investors, making sales and analyzing the market. These two were able to create a giant, simply because they were able to team up and work with their strengths. Co-founders being able to complement each other’s skillset is essential to any business’s growth.
Increased funding prospects: The cost of running a business has become increasingly high, and as such, most founders stop bootstrapping (this is a business term that simply means launching your business without any external help) and seek for angel or venture capital funding, and even, loans. Funding opportunities in Nigeria are slim, and the general belief is that the risk is mitigated when there are 2 or 3 co-founders on a team.
Ezra Olubi and Shola Akinlade were excellent coders with a fantastic product, but raising capital for Paystack was not easy till they were accepted into Y Combinator, just like Brian Chesky and Joe Gebbia of Airbnb. Afterward, Paystack was able to close a $1.3m seed investment round and Airbnb raised $7.2m in venture funding. Most investors or business incubators like Y Combinator would not look at a tech startup twice if they do not have a co-founder. It is almost an unspoken rule in Silicon Valley and in other investor hotbeds like London. Though it is not impossible to raise funding as a solo startup founder, it is much easier to do so with a co-founder. Even the famous angel investor, Ed Zimmerman, who has invested in over 50 startups and 20 venture funds, said he “vastly prefers multiple founders”.
Moral support: Businesses are not 9-5 jobs, they are 24-hour hustles. Starting one can be both risky and mentally tough. There will be no-sale days. There will be rejections from investors or partners. There will be times when the founder would want to wave the white flag. So, it is recommended to have a partner, a co-founder- someone whose ideas can be bounced off of, someone who will understand the vision and empathize, and most especially, someone who will be willing to fight for the company.
In 1999, two Stanford Ph.D. students, Larry Page and Sergey Brin, who had created a PageRank algorithm, 3 years earlier, tried selling the company, Backrub, (which would later become Google), to Excite, then number 2 search engine behind Yahoo, for $1m, to resume their studies at the university. They were turned down. Before then, Page and Brin had to beg professors for cash since they did not have the money to access all the computers, disk drives and computer memory they needed; with some investments as low as $40. These two, sometimes, had to travel across California looking for investors. If this was a one-man band, the sheer stress of running a Ph.D. program in computer science and a new firm that was operating out of a garage would have been overly exhausting. However, they had each other for moral and emotional support.
Financial contribution for bootstrapped startups: Aside from founders having to undergo so much mental exertion when they want to launch a company, possessing the cash to begin such can be a huge setback. According to SMEDAN and National Bureau of Statistics Collaborative Survey: Selected Findings (2013), “The main challenges confronting the operations of MSMEs in Nigeria are access to finance and poor infrastructure”
This is why the most common means of raising such cash is savings. However, growth can be slow when starting out this way, especially given that the purchasing power of many prospective entrepreneurs is low. In fact, Opeyemi Awoyemi, co-founder of Jobberman, revealed that he started the business with his fellow Obafemi Awolowo University (OAU) colleagues and current co-founders, Ayodeji Adewunmi and Olalekan Olude, only after they were able to raise some money between themselves to get the website running. Co-founder(s) provided the firm with an opportunity to raise more money to begin, start early and build more effectively. When starting Def Jam from Rubin’s NYU dorm, Russell Simmons and Rick Rubin both contributed a few thousands of dollars to start the company which has managed superstars like Kanye West, Jay Z, Rihanna, and LL Cool J.
Despite the reasons why a co-founder is needed when starting a business, it does not take away the fact that it is important to have legal considerations before going into such a partnership. Such agreements are not always as easy as how Paul Allen convinced his longtime friend, Bill Gates to quit his job so they could start a software company called Microsoft, or even how Travis Kalanick was onboarded by his pal, Garett Camp, to work on a ride-hailing service (Uber), Camp thought of after the Le Web conference in 2009. The objective truth is, things may not be rosy especially with cofounders with conflicting personalities.
So, what legal issues should be sorted out?
Equity – Each co-founder should know how much stake they have in the company. Some recommend a 50/50 split, whilst others recommend splitting based on perceived future company value and individual contributions. Sites like foundrs.com and the Startup calculator on gust.com can make this process easier. Regardless, a generally accepted system is the 4-year vesting approach, which generally implies that a cofounder will only get the complete stake allotted to them if they stay with the firm for 4 years. Leaving before the time would mean losing any shares that have not yet vested.
In simpler terms, if you were promised 20% of the company, which accounted for 2m out of 10m shares, what it means is that you will only get those 2m shares after 4 years. If you leave in 2 years, you will get 1m shares. If you leave or get kicked out after a year, you will leave with only 500,000 shares or 5% of the company.
Accession procedure – This, simply, is the system of accepting who would join the startup. Which of the co-founders is handling the hiring process? Is it a joint decision? This supposedly easy process has led to a lot of internal disputes, so it is important to handle them before they spell trouble for the business.
Intellectual property (IP) assignment – Here, all co-founders have to agree that as they are developing the product, the IP would belong to the company. If not, there are cases where one founder could claim 100% ownership of the idea, thus destroying the startup or leading to lengthy court cases like the Zuckerberg-Winklevoss twins case.
Agreement between co-founders – It is essential to have a legal document to provide a clear direction of the roles and company direction. The story of Twitter and its muddled history of how Noah Glass was ousted from the company he “co-founded” with Jack Dorsey, Biz Stone, and Evan Williams, still leaves a lot to be desired. There is no public knowledge of documentation that would help “set things clear” from the get-go for this former Odeo employees to prevent such from happening.
Following the current startup trends, it is evident that fintech has had the most investment in the past 3 years, but if you look closer, you would see firms like Flutterwave, PiggyBank, and Paystack, which are heralded as emblems with innovation driving our current modern startup culture, having more than one founder. It is no coincidence. Entrepreneurship in Nigeria is not the easiest to venture into because of the peculiarities of the Nigerian business ecosystem and consumer market. Hence, it is important to reduce your chances of business failure by simply getting a co-founder who can complement your skills and is driven by the mission. Better to fight a battle with a partner by your corner than go in all alone.