Customer Retention and the Risk of Magical Thinking

May 29, 2020 | Written by Jake Sorofman

I’ve always been struck by the concept of magical thinking, which is the curious belief that one’s ideas, thoughts, or wishes can somehow bend reality. The concept holds that, if you believe it deeply enough, your vision will manifest in the physical world.

Needless to say, hope is not a strategy and magical thinking has no place in the coldhearted world of business, particularly when it comes to managing customer health.

I’ve recently encountered circumstances where something like magical thinking influenced customer strategies in worrisome ways. How it specifically presents itself varies, but the common characteristics of this behavior is an unwillingness to believe that customers might feel anything less than deep commitment, conviction, and affection for your product or service.

It’s frankly easy to fall into this trap, particularly when you’re a founder who has given life to the thing you sell or an executive who has been fully indoctrinated in its manifold goodness and charms. How couldn’t our customers feel the same way?

These irrationally positive beliefs are only hardened by various sample biases. Confirmation bias allows us to see what we care to see in the select populations who attend every event we hold and every party we throw. Survivor bias narrows our field of vision to the ones who stick around, obscuring the ones who churned.

In both circumstances, our beliefs are propped up by the evidence we choose to see.

Of course data can help clarify the picture enormously, but I’ve seen even the most data-driven executives bend a narrative with various creative segmentations. NPS score, for example, can tell a dramatically different story when you add and remove inconvenient segments and cohorts. Sentiment can vary dramatically by certain roles and company types, which gives executives substantial range of motion in their post-hoc rationalization of data structures.

But even well formed data-driven queries don’t always tell the full story. In my experience, customer health scores are notoriously inaccurate, typically understating retention risks by missing the critical things in a customer’s business environment that simply can’t be seen or measured.

I know I sound like a killjoy in delivering this message, but these are the facts. Every company has two lists of vendors: the ones they absolutely can’t live without, and everyone else. Products and services with unrealized potential will inevitably fall in the latter category.

In general, I believe we overestimate the level to which the haters hate and the fanboys and girls swoon. The average customer isn’t quite as attached to either emotion as we may think.

That’s why the ability to demonstrate measurable value—to prove that your offering positively impacts their business outcomes—is really the only thing that matters.

Particularly right now.

Truthfully, there may have been a form of magical thinking that actually made sense in another economy: this belief that, even in the absence of demonstrable proof and measurable value, your customers would probably stick around if your vision was bold enough, your team was smart and fun enough, and your swag was of a certain quality.

No longer. Sadly, that party is over. Today, the calculus by which you’re measured is colder and harsher and less forgiving … but also fully within your control. Unlike magical thinking which has no discernible laws, what I’m describing is reducible to one simple argument: Outcomes rule.

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