How to lose sales & alienate customers  Too many firms are lousy entrepreneurs

And click. You’ve gone. I imagine you, a Director reader, might be annoyed that I, Director magazine, have treated you, in this way. You offer your custom – and what you get in return is this artful labyrinth of nothing, deliberately designed to keep you away from the product you seek.

So why have I done it? Well, if I’m being completely honest, proper magazine articles are a bit of a pain. They cost money. Someone must sit down and do the research, put the calls in and then write the thing. Or, here’s an idea, if I can string you along for 1,500 words or so with this infuriating Kafkaesque rubbish, I won’t have to bother, and who’s the winner there? Me, obviously. My costs have been cut to almost nothing. I’ve got my appraisal next week and, between you and me, I’m confident I’m going to absolutely smash it. You should see my spreadsheets! Behold my cost-cutting! A magazine with no articles! People said it couldn’t be done, boss – well, here it is! Truly I am a genius. Now then, about my bonus.

It all seems pretty daft doesn’t it? Yet so many large companies operate in precisely this way. The whole point of the enterprise is sacrificed upon the altar of internal targets and processes. Middle managers of hermetically sealed departments become accidentally incentivised to drive away sales and make their businesses ever more dysfunctional. Who cares about the customer? The KPI is king. More to the point, the KPI is often wrong.

One of the main reasons Octopus Energy –which didn’t exist ten years ago – is now the UK’s largest energy provider, is by coming along and deliberately looking at the whole industry in the opposite way to the virtual oligopoly of giant companies who had controlled it for decades. “There’s a KPI for most companies in a sector like energy, which is called call-deflection,” says Octopus Energy chief executive Greg Jackson. “That is, how do you avoid speaking to your customers and deflect the call elsewhere? Whereas we said, ‘Well, hang on, if we talk to customers, we can build a relationship with them, we can learn more about them and give them a better product and service.’

“Most companies have an ACH, an average call-handling target, which is how quickly can you get a customer off the phone. So teams are targeting getting customers off the phone – which means you get compounding issues, because you’ve got them off the phone before you’ve found out what the real issue even is.”

It wasn’t always this way. For the most part, huge companies, once upon a time, were small companies. They met a need, they solved a problem. They were, in most cases, driven by the ferocious ambition and clear goals of a tiny number of people. Keeping hold of that mentality, which once the joyous burden of scale is reached, is a serious challenge. The business writer and investor Paul Graham has called it ‘founder mode’, in which every part of a company keeps hold of the clear focus on their original goals, rather than slipping into ‘black-box mode’, where different departments do their own thing, often unknowingly in conflict with each other.

Startups must take risks. Their entire existence is a risk. Once companies become larger, risks become real. There are downsides to risk. Startups have nothing to lose, big companies have plenty. If a fintech startup and a big bank both reckon they know who’s going to win the Grand National, they can both have a punt. But while the startups place their stakes and ride the risk, the big boys find that compliance, legal, finance, IT, security, HR and everybody else wants to have their say. Thus, they end up backing every horse in the race. Even when it turns out they called it right, there’s nothing left to celebrate.

Large companies can, occasionally, become scared of their own innovations. A commonly cited example is the Kodak engineer, Steven Sasson, who invented a prototype for a digital camera in 1975. His bosses, who made a lot of money from selling film, were unimpressed. Netflix, on the other hand, was making a lot of money from renting film, specifically DVDs by post, but it still had the courage to destroy its own business model by aggressively embracing digital streaming. “We knew if we didn’t disrupt ourselves, someone else would,” wrote the company’s cofounder Marc Randolph in his 2019 book, It’ll Never Work.

So, how does a large company keep hold of its startup mentality? “It’s a like a tree,” says Jackson. “Think of how a tree grows. It has a central trunk, and then it has branches and twigs, and at the end of the twigs you’ve got leaves and buds. It’s the leaves and the buds that are the point of growth. And it’s the same way in an organisation. Innovation happens at the edge, not at the centre. The ideas for new products, new services, new processes, come when you’re dealing with an issue, out at the edge.

“In traditional corporate innovation, the team spends forever trying to get approval – round after round of pitching. By the end, everyone’s bought into it, and no one can afford for it to fail. So more and more resources get thrown at it, even when it doesn’t work.”

Consider this. Twenty years ago Billy Boyle was cofounding the nanotech company Owlstone. The idea was to build microchips that could detect explosives and other harmful substances – sniffer dogs, essentially, but tiny and cheap, which could conceivably find their way into every office building or underground train carriage. Nine years later, Boyle’s wife died from bowel cancer, which might have been prevented with earlier detection, and he realised the same technology might be used to do precisely that. Now he is the chief executive of Owlstone Medical, having expanded the company in a whole new direction.

“The one constant is change, and companies that are not prepared to embrace this and adapt are far more likely to fail,” says Boyle. “It can be painful, but we’ve always tried to be brutally honest and have had to pivot the business several times. We listen to everyone. We understand that great ideas can come from anywhere. No one has a private office. Anyone across the business can, and actively do, ask questions and challenge the leadership team.”

Crucially, not all innovation is the same. When Octopus arrived on the energy scene a decade ago, whatever innovation it found was happening at the backend of the sector, not the customer-facing end. Companies cared far too much about things that customers didn’t know about or care about.

“The big job, in the old energy world, was to run the big generating plants, and the grid, and the networks. Innovation was about moving from one type of gas turbine to another, from coal to wind. Consumers were just an off-taker really,” says Jackson. “An energy company didn’t think of itself as having ten million customers, it had ten million meters. That was the data atom, a meter. No one could see that you could actually innovate with customers as well. That there was a point in having customer service. We could see that Amazon wasn’t built to get the most out of its warehouses, it was built to deliver better products and services for customers. And that was the insight we had to build at Octopus Energy.”

One way to ensure innovation happens at the edge, is for senior leaders to spend time at the edge. On the morning I spoke to him, Jackson had returned from one of his surprise visits to a customer’s solar panel installation. It was only onsite that they became aware that they could easily fit four panels, not the planned two. Jackson made some calls and it was done, and he is already working on how to improve the processes and systems to make such a thing routine. “As you get bigger,” he says, “it should be easier to solve customers’ issues, not harder.”

Octopus Energy is now valued at around £7.2 billion, so it’s fair to say that Jackson is on the money. According to the 2020 PwC Future of Customer Experience Report, 32% of customers will walk away from a brand they love after just one bad experience. Some 60% would leave after several. And every customer that leaves goes somewhere else. There is no easier way to service your rivals than to alienate your own customers.

On the upside, customer problem-solving pays dividends. Big companies can capitalise on innovation in ways that startups can only dream. A recent article published by McKinsey – ‘Committed innovators: How masters of essentials outperform’ – looked at how, among other things, the Covid pandemic forced all kinds of businesses to rapidly reinvent themselves, in several cases generating enormous returns.

The easy, corporate-speak answers are obvious. You must flatten the hierarchy, you must create safe spaces for risk-reward experimentation – not just efficiency. But you must also see the value in investing time and money where rivals do not. “If it costs us five quid to handle a phone call, but you’re paying us nearly two grand a year, I think we should spend the five quid on the phone call, rather than trying to avoid you,” says Jackson. “We should turn it into a positive experience, not a shit one. And I do hear from customers [that] they dread phoning up companies. But I actually look forward to them giving us a call.” Thank you for reading. You may now hang up.