“Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.”
The average business is designed to facilitate transactions with customers.
And that’s why the average business fails.
I want to show you a video:
— #MFAM Central (@MFAMCentral) September 18, 2021
Background: This is Twitch streamer Nick Mercs. He’s arguably the most popular streamer on the planet right now. Earlier this month, 10,000 people flew to Tampa Bay to meet him, and each other. They paid to get there, Nick and his team covered the event for them.
When you watch that video and hear what it was about, you will likely have one of two different reactions to it:
1 – ‘OMG, that’s amazing!’
2 – ‘Heh, that’s cute.’
Regardless of your reaction, everyone who watches that video understands that Nick and the 10,000 people at this event do not have a transactional relationship.
Let’s watch another video:
In this video, pro wrestler CM Punk returned to the industry for the first time in 7 years. The excitement from those in attendance speaks for itself, tens of thousands of people overjoyed. Grown men crying tears of joy, and it appeared that Punk himself almost did.
This is the point at which I will lose some of you in the ‘Heh, that’s cute.’ group. But when you watch the second video, regardless of what you think of it, you also understand that CM Punk and the people in that arena do not have a transactional relationship.
What is a family?
When I watch these two videos, here’s what I see: Nick loves everyone that showed up to #MFAMBBQ2021, and they love him right back. CM Punk loves everyone who is cheering for him and they love him right back.
That’s not a transactional relationship. It’s a loving relationship. I care about you, you care about me.
I tweeted the #MFAMBBQ2021 video on Saturday during the event. Notice the reply I got:
A member of MFAM corrected me, MFAM isn’t a community it’s a family.
It's FAMILY #MFAMBBQ2021
— Allstar1581 | MFAM (@BrewCrew1584) September 18, 2021
A family looks out for each other. They care about each other.
Families have loving relationships, they do not have transactional ones.
It’s time to kill your business
The definition of a business, as defined by the Merriam-Webster’s dictionary, is:
“the activity of making, buying, or selling goods or providing services in exchange for money”
In other words, a business has a transactional relationship with customers. Everything about the business is designed to facilitate the transaction.
Once the customer completes or rejects the transaction, for all intents and purposes, that is the end of the relationship between the customer and the business.
This approach creates several obvious obstacles for the average business. First, they need more transactions. Which means spending more on marketing to attempt to create more transactions. Second, they need more customers, since brand loyalty is not created via a transactional relationship. Which again leads to more costs.
The customer is synonymous with a transactional relationship. If a business is built on simply facilitating transactional relationships with customers, then its costs of doing business will always be higher. The only purpose of the customer is to provide cash to complete the tranaction. The only purpose of the business is to provide the product or service that the customer wants to buy.
This is why we need to stop thinking about a business being about facilitating a transactional relationship. How we communicate, engage and interact with each other has changed dramatically in just the last 25 years. But the basic function and design of the average business is still rooted in facilitating transactions.
It’s time we changed that.
What if a business existed to invest in the people who buy its products and services?
Let’s go back to Nick Mercs for a moment. As a streamer on Twitch, one of the main ways he generates income is via subscriptions and donations from his viewers. But it isn’t the only source of income for Nick. Another source is sponsorships. One of Nick’s sponsors is Cash App.
On a recent stream, Nick talked openly about his sponsorship deal with Cash App. He noted that when he made the deal with Cash App, he structured it so that Cash App is required to regularly give cash away to his subscribers. Cash App provides money that Nick then randomly gives away to his subscribers.
This could be viewed as an example of Nick investing back into his subscribers. At the same time, Cash App’s sponsorship of Nick’s steam could be seen as Cash App investing in the success of Nick’s stream. By investing in his subscribers, Nick gains the loyalty of his subscribers, who are known as MFAM (Mercs Family). Since MFAM is loyal to Nick, that loyalty transfers to great degree to sponsors like Cash App. Because MFAM understands that by sponsoring Nick’s stream, Cash App is investing in Nick’s stream, and helping to make it possible.
If Nick was treating his Twitch stream as a business, and a purely transactional one, he would treat it quite differently. He would attempt to maximize subscriber counts and treat subscribers as customers who are purchasing a product (his stream content).
Instead, Nick views his subscribers as a community or family, MFAM. And as he becomes more successful, he looks for ways to take money from his sponsorship deals and redistribute it back to his subscribers. In another recent stream, Nick mentioned that he had set up Instagram accounts for the family dogs, Joey and Jackson.
View this post on Instagram
Nick added that once the account has enough followers to start attracting sponsorship dollars, that Nick is going to take the money raised from the IG account and use it to buy pet food for the pet owners in MFAM. Another example of how Nick is creating an investing relationship with his MFAM versus a transactional one.
It’s time for business, and the relationships it pursues, to evolve
A business that is designed and structured simply to facilitate transactions cannot endure. Many businesses across the world are starting to wake up to this reality. We are seeing more and more discussion about how we need to focus on things besides the transaction. Topics such as focusing on customer experience, or customer loyalty or customer satisfaction are signs that businesses understand that they need to evolve.
The problem is that businesses are attempting to focus on these areas, but within the framework of keeping a transactional relationship with their customers. This is addressing the symptom rather than the core sickness. The issue isn’t that businesses need to focus on customer experience, loyalty and satisfaction, the issue is that businesses need to focus on creating a new type of relationship with the people that buy its products and services.
Businesses need to move from having a transactional relationship with its customers, to having an investment relationship with the people who buy its products and services. And the investment will flow both ways; The business invests in the people who buy its products and services, and those people invest back in the business.
We are already seeing how some businesses are experimenting with this idea of moving from being transactional to focus on investment. Here’s some examples:
- Red Bull and Monster Energy both invest heavily in sporting teams and events. Both brands do so to communicate to their customers that they have ‘skin in the game’ and that they want to grow the sports and events that their customers love. This connects with customers, who see that the energy drink brands want to have something more than a business/customer relationship with them.
- Patagonia’s Worn Wear program is actually about DECREASING transactions. The Worn Wear program is about helping current Patagonia clothing owners extend the life of their clothing by fixing and repairing it. Patagonia’s stated goal for the program is to REDUCE new purchases, and reduce consumption. This communicates to customers that Patagonia is invested in protecting the planet, and it rallies Patagonia’s customers to take up the cause, and to show higher levels of loyalty toward the brand.
- Clubhouse and its Creator Accelerator Program. This is an initiative that Clubhouse launched earlier in 2021 where Clubhouse will invest directly in room owners that meet certain requirements. In essence, Clubhouse is putting resources, whether it’s money, equipment, or mentoring into what it identifies as promising creators on its platform. Clubhouse is investing directly in those creators, with the hope being that as these creators have more resources, they will continue to grow the popularity of their rooms, which will also help grow the Clubhouse platform. Now what’s missing from this equation, to a degree, is the investment in the room listeners. They are the third leg of the stool and are kinda left out in the cold a bit in this deal. But perhaps Clubhouse and its creators will come up with ways for listeners to both monetize room owners, and for the platform and room owners to transfer gifts or other forms of investment back to the room listeners.
How do we go from transacting with our customers, to investing in them?
Let’s say we want to move our business from being rooted in facilitating transactional relationships with customers, to a model where the business invests in its customers, and the customers invest back in the business.
What would that model look like?
Let’s use supermarket chain Publix as a hypothetical example. Publix sells groceries. It’s a purely transactional model.
What if Publix wanted to shift to having an investment model with its customers? What would that look like?
Here’s one possibility: Let’s say Publix is going to invest directly in the health of its customers. Publix is no longer in business to sell groceries, it’s in business to invest in the health of its customers.
Think about the changes that could happen at Publix to reflect this change. When you first enter Publix, you will typically see a spinner rack by the door that has the current sales circular, several coupon books, maybe even a card with a recipe or two on it. If Publix wanted to invest in the health of its customers, perhaps it could replace the coupons and sales with a list of suggested foods for each age group. For instance, there could be guidelines on foods to buy if you are ages 50 and up. One side of the paper could be foods you want to buy to gain weight, the other could be foods to buy if you want to lose weight. There could be custom shopping lists for other ages or interests, such as people who are diabetic, have high blood pressure, etc.
And throughout the store, there could be cooks preparing meals and instructing customers on how to do so. There could be physical trainers on staff or available by appointment to discuss and create a health regime for customers. As customers are shopping, food could be grouped by body type, or age, or medical condition, instead of simply grouping by brand.
This would all likely lead to more expenses for Publix, which would need to be passed along to the customer in the form of higher prices. However, if Publix could show the average customer how to live a healthier lifestyle, wouldn’t that outweigh a modest increase in prices? Would you pay 25% more for groceries if it meant you would get an additional hour of REM sleep a night, have lower blood pressure, and more energy? I think most people would.
In addition, Publix could hold workshops on how to cook food at home, how to better exercise, what vitamins and supplements to take. They could partner with local fitness centers and health organizations.
There are so many other possibilities. And it all starts with a simple supermarket deciding that it no longer exists to sell groceries, but instead to invest in the health of its customers.
It’s time to rethink business, it’s time to end the transactional relationship
Business as usual is fast approaching its expiration date. Advances in technology, especially around how we connect with each other and share information, is prompting us to expect more from the brands that we give our money to. We honestly do want a deeper relationship with brands, but brands have to earn that relationship. They have to communicate to their customers that they value them as more than simply being another transaction.
Brand loyalty is not created in a transaction model. The most successful businesses have higher levels of loyalty from their customers. Your goal isn’t to facilitate more transactions, it’s to earn the loyalty of your customers.
And you do that by investing in them. I have some more thoughts on this, so click play: