Tuesday, November 4, 2008

Keep Track of Your Customer's Sentiment

It is easy for management teams, boards and venture capitalists to get caught up in the headlines. The risk of doing that, of course, is missing out on a subtle but important change that indicates a new trend.

After the Internet/Telecom bubble burst, I noticed a certain business practice that helped some companies survive. The better management teams developed systems for tracking the planned spending patterns of their customers. They created weekly charts using various relevant metrcis for following the changing sentiment of their customer base. For instance, were customers talking about shifting to lower cost products, were they starting to defer certain expenses, ect? The upshot was that during board meetings we had information rather than one off anecdotes. And by tracking customer changes week by week, we acquired a better feel for the direction our market was headed. The most striking example of this was in tracking Internet adverstising. Most peopole (VCs included) would have assumed that the post bubble Internet adverstising spend was down 50%, maybe even 75%. In reality, by tracking the numbers, Clearstone's consumer Internet companies saw that the spending decline was a relatively modest 15% to 20%. Pretty bad but not terrible. That gave our managment teams more confidence when it came to making decisions about growing their businesses.