Author: Christopher Carfi

The May 2008 issue of Fortune Small Business contained a breathless article on the "Net Promoter Score," which is defined thusly in the article:

"First, ask you customers to rate you on a scale of 0 to 10 based on the question ‘How likely is it that you would recommend this company to a friend or colleague?’  Then sort the responses into three groups: promoters (9’s and 10’s), passives (7’s and 8’s), and detractors (0’s through 6’s).  The percentage of promoters minus the percentage of detractors equals your score.  A company with 75% promoters and 15% detractors, for example, would have an NPS of 60."

Net Promoter Score (NPS) was vaulted into the mainstream in a 2006 book entitled "The Ultimate Question" by former Bain & Co. partner Fred Reichheld.

Is NPS a panacea?  The data is mixed.  On one hand, Fortune reports that "the average US company has an NPS of about 15" and telecom/cable companies are "real dogs" with an NPS of -4…yes, NEGATIVE four.  So from that perspective, things seem to synch with conventional wisdom (and personal experience).  On the other hand, much question has been given to the statistical validity of NPS.

In particular, a heated conversation thread hosted by the Journal of Marketing notes the following:

"1) We did not find Net Promoter to be a good predictor of growth at all
when attempting to replicate Reichheld’s methodology. We find this
quite strange given the overwhelming evidence Reichheld reports
regarding Net Promoter’s linkage to growth.

2) The most troubling finding from our research, however, is that we
found very strong evidence of research bias in the research reported by
Reichheld in support of Net Promoter. In particular, we were able to
replicate a subset of Reichheld’s reported data for his best case
scenarios and compare it to a metric he claimed was examined and found
to have a 0.00 correlation to growth, the ACSI. Our findings clearly
show that when using Reichheld’s own data, Net Promoter wasn’t superior
to the ACSI. It is virtually impossible to imagine a scenario other
than research bias as the cause of this finding.

This is a VERY SERIOUS problem."

Going back to the Fortune article, they interviewed 20 companies, all of which had positive things to say about NPS, with key note given to its simplicity and ability to highlight particular customer issues.

But I’d be very interested in hearing from you.  What have been your (or your organization’s) experience with Net Promoter.  Best thing since sliced bread, snake oil, or a mixed bag?  Or, put another way:

"How likely is it that you would recommend the metric of Net Promoter Score to a friend or colleague?"

Thoughts?

A really nice overview of the evolution of Gmail Chat.

My friend Andy Sernovitz is doing a relatively rare public talk about word-of-mouth marketing (he usually does private, invite-only gigs).  He’ll be speaking at the AMA on June 26th.  Here are the details on the AMA talk.

There’s also going to be a blogger meetup that same day.  Andy writes:

"I’d like to invite you to join us for a blogger meetup before my Word of Mouth Marketing keynote at the SF AMA dinner (http://www.sfama.org).

AMA is buying drinks!

Would love to just say hi, chat about word of mouth, and you can beat me up a little about the Blog Council.

Where:  Hilton San Francisco Financial District, 750 Kearny St., in the "750 Lounge"

When:  June 26, 5:00 pm

Details:  The AMA event starts at 6:00.  You can attend the meetup without registering for the AMA event."

Check it out if your get a chance.

Brave New World of Entrepreneurship and Venture Finance: New Realities, New Choices
Moderator
Raffi Amit (Wharton), Jeff Clavier (SoftTech VC), Jim Lussier (Norwest
Venture Partners), Evan Williams (Twitter), Vipin Jain (Retrevo), Jim
Greer (Kongregate)
          

"The startup financing process is changing. Companies today can start
anywhere, develop rapidly, and collaborate across multiple locations,
all for a fraction of what it used to cost. Angels, venture
capitalists, strategic investors, and entrepreneurs all face a new set
of choices. This session, moderated by one of the country’s leading
professors of entrepreneurship, will look at trends and changes in
funding strategies, deal structures, partnerships, and exit options,
and will feature experts from the key constituencies at the forefront
of these trends."

Raffi Amit began the panel with an overview of the current venture environment for startups.  It’s a mix of good news (2007 had over 2,800 transactions) and bad (average time to exit via IPO or acquisition continues to extend).

Business models "span industry and firm boundaries" — Priceline.com didn’t invent a new technology, for example, but instead built a business aournd a novel business model.

Amit says the business models must be "NICE" and contain

• Novelty
• Lock-In
• Complements
• Efficiency

A link to details on the NICE model is here.

Ev: "Angel money helps you build an engine for your company, VC money is the fuel you put in the engine."

Jain: "I found a [VC] partner who resonated, who gave us money early to build the product."

Q: what’s the tradeoff between VC and Angel investors?

Greer: "The advantage of an angel is that you’re talking to a person, rather than someone representing limited partners (like at a VC firm).  They have been in your shoes."

Lussier:  "One of the things we’re seeing is a consolidation in the VC business now.  The same amount is being invested, but it’s being concentrated in fewer hands.  Right now, the venture industry is returning about 1x.  Right now, there’s a "120/10" rule, not an "80/20" rule —  120% of the returns are going to come from 10% of the funds or 10% of the investments.  As Series A investor, we’re looking to put 3MM-6MM-10MM into a round, and split that with another firm."

Clavier: "When to call whom: if you have a track record in the VC industry, you can go directly to VCs and don’t need to go to an angel syndicate.  For angels, we look at valuation…’this company should be worth X.’  The valuation will be more flexible for the VCs.  For angels, we look for a ‘good team.’  I take risky bets, but the ones that work will take care of the others."

Jain: "For very early stage, it’s important to find an individual who can emotionally attach to the prospects the company has."

Amit: Classes of risk:

• Company – Team, product
• Market – Willingness of buyers to buy, time to commoditization
• Capital – Ability to raise capital

Comment from Axel Schmiegelow: "If you get corporate VCs, get two (Clavier adds "get three") – it keeps them all on track."

Q: "How much runway should you have for your cash?"

Clavier: I like to see 12 months of solid execution from the cash we put in, plus time for fund raising.  If the investment doesn’t cover 15-16 months of runway, it should.  You want to have enough runway to know at the end of the tunnel if you can make it as a standalone company.

Jain: You should be raising enough money to last 18 months.  Don’t worry about small (5%-10%) dilution to your stake.  If you are confident you’ll hit the milestones from the business model or revenue model.

Lussier:  Give yourself at least 18 months…you sometimes (always?) hit a bump.

Ev: No matter how much you’ll raise, you’ll always spend it in 12 months. (laughter)

#supernova2008

Liveblogging Clay Shirky…

Kids in Belarus, "Nothing says ‘dictatorship’ like arresting people eating ice cream."  People using collective action to make a point.

"Protest movements" or STOP actions seem easier than START actions.  Why?

Density and Continuity are precursors to collective action (for "start actions").

• Density — There are enough people
• Continuity — The relationships will continue

We used to get density and continuity due to "inconvenience"…it was hard to do things, so density and continuity were required.  Now, since many things are (comparatively) "easy," we need to think about creating density and continuity by design.

The act of "incorporation" (literally "embodiment") is how society currently deals with enabling collective action.

Question: Is there a licensing structure that enables collective action?

Examples:

• The Virtual Company Project
• Community Interest Companies
• The Meetup Alliance

The final question:  How can we move from stop energy to starting or sustaining? If we don’t, we’re only creating a partial revolution.

 

Dave Balter has written a new book, "The Word of Mouth Manual, Volume II."  You can get it for 45 bucks at Amazon.

Or, you could download it for free here.  It’s sized for easy screen reading, and that’s kinda cool.

Good stuff.  Get it here.

Bonus:  It’s got a monkey on the cover.  Everybody loves monkeys.

Related:  If you like The Word of Mouth Manual," also check out the classic Word of Mouth Marketing by Andy Sernovitz.

Things I wonder about: Whenever there’s something "free" announced, am I the only one whose mind immediately tracks to this Jack Handy "Deep Thoughts" quote?

Lisa turned me on to William Gibson’s Pattern Recognition which, in addition to being a fun summer read, has some of the best insights on What’s Wrong With Marketing As It Is Today.  An excerpt:

"What do you do?"

"Look sotted, go to clubs and wine bars and chat people up.  While I’m at it, I mention a client’s product, of course favorably.  I try to attract attention while I’m doing it, but attention of a favorable sort.  I haven’t been doing it long, and I don’t think I like it."

Magda does indeed speak good English, and Cayce wonders at the difference in their fluencies.  But says nothing.

Magda laughs.  "I really am his sister," she says, "but our mother brought me here when I was five, thank God."  Putting away the last hat, she closes the carton and hands it to Voytek.

"You’re paid to go to clubs and mention products?"

"Firm’s called Trans.  Doing very well, apparently.  I’m a design student, need something to make ends meet, but it’s getting to be a bit much."  She’s lowering a sheet of tattered transparent plastic to indicate that her makeshift stall is now closed.  "But I’ve just sold twenty hats!  Time for a drink!"

The unplanned, decentralized nature of the web never ceases to amaze me.  I follow David Wallace (blog, twitterstream) on Twitter and noticed that he was starting to hashtag things with #openflow.

Then I noticed a tweet he put up: "Openness is a value."

I can only imagine that he was listening to the replay of the great Openflow call we had last week, and noted that some of the concepts within were worth saving and commenting on.  Now, without any centralized planning at all, there’s an identifier that has jumped into the lexicon for grouping together the conversations that will happen next week as part of the Openflow session at Supernova.

Outstanding.

We’ve posted the audio from last week’s Supernova Open Flow call, as well as the transcript from the live parallel IRC web chat:

– Call audio (MP3, 109 minutes):  http://tinyurl.com/639g2g

– Chat transcript: http://tinyurl.com/5hget3

The conversation, featuring Supernova organizer Kevin Werbach, author
and consultant Elliot Maxwell, BT’s Jeremy Ruston, noted technologist
(and Open Flow track chairperson) Tantek Celik, and Chris Carfi of
Cerado, covered an impressive range of topics around the meaning of
openness in business. From standards that emerge bottom-up, to changing
incentive structures in organizations, to the possible links between
openness and tyranny, it was a challenging discussion filled with
insights.

We will bring some of the themes from the call into the Open Flow track
at Supernova — along with a visual record of the conversation by
illustrator Eileen Clegg. We welcome your comments at [email protected], or on our Conversation Hub site at http://tinyurl.com/5qgn77.

(crossposted from the ConversationHub)

Driving into town this evening, was passed by a horde of fire trucks and other safety vehicles.  As I crested Skyline Drive, the reason became apparent – a significant forest fire had broken out right on the outskirts of town. 

As we are a few short hours before a red-flag warning with high winds and severe fire danger, the authorities appeared to have pulled out all the stops.  In addition to a host of fire trucks, I saw a massive bulldozer being brought into town on a flatbed truck.  (As a matter of fact, right now, we’re being buzzed by a water-dumping helicopter and the firefighting aircraft you see to the right…check that shot out at the original size for the full effect.)

Update:  At 7pm, the fire was 70% contained.  As of right now, the air assault seems to have stopped, the smoke has dissipated, and the sirens have stopped, so it appears they have things under control.

Update 2:  At 8:30pm, the fire was 100% contained.